Question

Canadian accounting: On December 31, 20x0, a bus manufacturer sold 10 busses at a price of...

Canadian accounting:

On December 31, 20x0, a bus manufacturer sold 10 busses at a price of $350,000 each. The bus manufacturer’s incremental borrowing rate is 4%. The bus manufacturer estimates the customer’s incremental borrowing rate to be 5%.

The bus manufacturer is a publicly accountable entity.

Required –

For each of the following scenarios, prepare the journal entries on the books of the bus manufacturer for the years ended December 31, 20x0, 20x1 and 20x2 for the following terms of payment:

a. 0% interest, pay the $3,500,000 on December 31, 20x2.

b. 20% down, 2% interest on the balance, pay the balance ($2,800,000) on December 31, 20x3.

c. Equal annual payments over 5 years with the first payment due on December 31, 20x1. The bus manufacturer used a 1.5% interest rate when calculating the annual payment.

d. The customer had the option to pay a cash price of $315,000 per bus but instead opted to pay the full $3,500,000 on December 31, 20x2 at 0% interest.

e. Redo item (c) on the assumption that the bus manufacturer is a private company using ASPE and wants to keep things as simple as possible.

Homework Answers

Answer #1
a. 0% interest, pay the $3,500,000 on December 31, 20x2.
Dec 31 20X0 Accounts Receivable $    35,00,000
Sales $35,00,000
Dec 31 20X2 Cash $    35,00,000
Account Receivable $35,00,000
b. 20% down, 2% interest on the balance, pay the balance ($2,800,000) on December 31, 20x3.
Dec 31 20X0 Accounts Receivable $    35,00,000
Sales $35,00,000
Dec 31 20X0 Cash $      7,00,000
Accounts Receivable $   7,00,000
Dec 31 20X1 Cash $          56,000
Interest Income $      56,000
To receive Interest on the Balance of $2,800,000 @ 2%
Dec 31 20X2 Cash $          56,000
Interest Income $      56,000
To receive Interest on the Balance of $2,800,000 @ 2%
Dec 31 20X3 Cash $          56,000
Interest Income $      56,000
To receive Interest on the Balance of $2,800,000 @ 2%
Dec 31 20X3 Cash $    28,00,000
Accounts Receivable $28,00,000
To record the cash received the Balance of $2,800,000
c. Equal annual payments over 5 years with the first payment due on December 31, 20x1. The bus manufacturer used a 1.5% interest rate when calculating the annual payment.
Dec 31 20X0 Accounts Receivable $    35,00,000
Sales $35,00,000
Dec 31 20X1 Cash $   7,31,813.0
Accounts Receivable $   7,31,813
Dec 31 20X2 Cash $   7,31,813.0
Accounts Receivable $   7,31,813
Dec 31 20X3 Cash $   7,31,813.0
Accounts Receivable $   7,31,813
Dec 31 20X4 Cash $   7,31,813.0
Accounts Receivable $   7,31,813
Dec 31 20X5 Cash $   7,31,813.0
Accounts Receivable $   7,31,813
d. The customer had the option to pay a cash price of $315,000 per bus but instead opted to pay the full $3,500,000 on December 31, 20x2 at 0% interest.
Dec 31 20X0 Cash $    31,50,000
Cash Discount $      3,50,000
Sales $35,00,000
Know the answer?
Your Answer:

Post as a guest

Your Name:

What's your source?

Earn Coins

Coins can be redeemed for fabulous gifts.

Not the answer you're looking for?
Ask your own homework help question
Similar Questions
Champs Ltd. is authorized to issue $3,500,000 of 4?%, 10?-year bonds payable. On December? 31, 2016?,...
Champs Ltd. is authorized to issue $3,500,000 of 4?%, 10?-year bonds payable. On December? 31, 2016?, when the market interest rate is 5?%, the company issues $2,800,000 of the bonds. Champs Ltd. amortizes bond discount by the? effective-interest method. The semiannual interest dates are June 30 and December 31. Requirements 1. Use the PV function in Excel to calculate the issue price of the bonds. 2. Prepare a bond amortization table for the first year of the bond 3. Record...
Exercise 10-15 Coronado Corporation purchased a computer on December 31, 2019, for $119,700, paying $34,200 down...
Exercise 10-15 Coronado Corporation purchased a computer on December 31, 2019, for $119,700, paying $34,200 down and agreeing to pay the balance in five equal installments of $17,100 payable each December 31 beginning in 2020. An assumed interest rate of 8% is implicit in the purchase price. Prepare the journal entry at December 31, 2020, to record the payment and interest (effective-interest method employed). Date Account Titles and Explanation Debit Credit December 31, 2020
Rhone-Metro Industries manufactures equipment that is sold or leased. On December 31, 2018, Rhone-Metro leased equipment...
Rhone-Metro Industries manufactures equipment that is sold or leased. On December 31, 2018, Rhone-Metro leased equipment to Western Soya Co. for a four-year period ending December 31, 2022, at which time possession of the leased asset will revert back to Rhone-Metro. The equipment cost $580,000 to manufacture and has an expected useful life of six years. Its normal sales price is $618,738. The expected residual value of $26,000 at December 31, 2022, is not guaranteed. Equal payments under the lease...