North Vancouver Laundry (NVL) recently hired Fred as its payable clerk, a position that has been vacant for two months. While the other accounting staff have taken care of the “must do’s,” there are a number of transactions that have not yet been recorded:

November 15, 2020—NVL purchases $5,000 of supplies inventory on account. The terms offered are 2/10 net 30.

November 22, 2020—NVL purchases 10 washing machines. NVL issues an $8,000 non-interest bearing note payable due on January 15, 2021. November 28, 2020—NVL borrows $20,000 from the bank. NVL signs a demand note for this amount and authorizes the bank to take the Interest payments from its bank account.

Interest is payable monthly at 4% per annum.

December 18, 2020—NVL purchases $4,000 supplies inventory on account. The terms offered are 2/10 net 30.

December 21, 2020—NVL purchases 15 dryers. NVL issues a $10,000 non-interest bearing note payable due on December 21, 2021.

December 22, 2020—Fred pays the November 15, 2020, and December 18, 2020, invoices.

December 31, 2020—Fred processes the payroll for the month. The gross payroll is $20,000; $1,400 is withheld for the employees’ Canada Pension Plan and Employment Insurance premiums.

Other information

■ NVL uses the net method to record accounts payable.

■ NVL’s year-end is December 31 and interim statements are normally prepared on a monthly basis.

■ Due to the vacancy in the accounting department, NVL’s latest interim statements are for the period ended October 31, 2020. The necessary accruals were made at that time.

■ The market rate of interest for NVL’s short-term borrowings is 4%.

Required:

a. Prepare journal entries to record the documented events and the necessary accruals for the months of November and December. Compute interest accruals based on the number of days, rather than months.

b. Contrast the gross and net methods of accounting for trade payables.