DCL Industries Purchased a Supply of Mechanical Components from E

question 60

Essay

DCL Industries purchased a supply of mechanical components from E Corporation on November 1, 2018. In payment for the $48,000 purchase, DCL issued a one-year installment note to be paid in equal monthly payments at the end of each month. The payments include interest at the rate of 12%.
Required:
1. Prepare the journal entry for DCL's purchase of the components on November 1, 2018.
2. Prepare the journal entry for the first installment payment on November 30, 2018.
3. What is the amount of interest expense that DCL will report in its income statement for the year ended December 31, 2018?

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Definitions:

Fixed Costs

Costs that do not vary with production or sales levels, including rent, insurance, and salaries, which remain constant regardless of business activity levels.

Operating Income

The profit realized from a business's operations, calculated by subtracting operating expenses from gross profit.

Fixed Costs

Expenses that do not change in proportion to the activity of a business, such as rent, salaries, and insurance premiums.

Flexible Budget

A budget that adjusts or varies with changes in the volume of activity, providing a more useful tool for performance evaluation.