On March 1, Mira Sales, Inc. purchased inventory costing $452,400 using a 4-month trade note payable. The note carries an annual interest rate of 6%. Mira has a December 31 year-end. Prepare the journal entries required. The company uses the perpetual inventory system. What is interest expense during the current year?

Note payable x Annual interest rate x Time period = Interest expense

$458,400 x 5% x (4/12) = $7,640

Account	Debit	Credit
March 1
Inventory	458,400
Notes Payable		458,400
Aug.1
Notes Payable	458,400
Interest Expense	7,640
Cash		466,040

This is the answer and work that my text book gave me however it does not explain how they got the note payable or why the annual interest rate changes. Please explain.

Thank you!