Question

Q) Natural Designs sells furniture on 12 months’ interest free terms to qualifying customers. On 30...

Q) Natural Designs sells furniture on 12 months’ interest free terms to qualifying customers. On 30 June 2019, Natural Designs sells $20 000 of furniture to T. Bailey, payable by 30 June 2020. The appropriate interest rate for this transaction is determined to be 6% per annum. The present value of the $20 000 to be received in one year’s time is $18 868. The journal entry to be recorded by Natural Designs at 30 June 2019 is:

A) DR Bank $20 000; CR Receivable $20 000


B) DR Receivable $20 000; CR Sales revenue $20 000


C) DR Receivable $20 000; CR Sales revenue $18 868; CR Interest revenue $1 132


D) DR Receivable $20 000; CR Sales revenue $18 868; CR Deferred interest $1 132

Business   Accounting   
0 0
Add a commentTranscribed image text
Next >

Homework Answers

Answer #1

The correct option is (D). DR Receivable $20 000; CR Sales revenue $18 868; CR Deferred interest $1 132.

Explanation: The sale of goods on credit will increase the receivables balance. Therefore, it is debited. The sales are increasing, thus, it is crediting and the deferred interest is a liability. Therefore, it is credited.

The deferred interest is applied on the period of zero-interest if the buyer pays off the balance within the stated time period. If the buyer is not able to pay the balance by the end of the stated period, then he/she is liable for the interest payment retroactively from the beginning of the zero-interest period.

Please take your valuable time and rate the solution as per your convenience.

0 0
Know the answer?
Your Answer:

Post as a guest

Your Name:

What's your source?

Earn Coins

Coins can be redeemed for fabulous gifts.

Log In

Sign Up

Not the answer you're looking for?
Ask your own homework help question
Similar Questions
Great Outdoors Ltd sells outdoor furniture settings on credit. The accounting records at 30 June 2019...
Great Outdoors Ltd sells outdoor furniture settings on credit. The accounting records at 30 June 2019 reveal the following. Ignore GST. Credit sales (for year) $1,113,000 Credit sales returns and allowances (for year) 94,000 Accounts receivable (balance 30 June 2019) 339,500 Allowance for doubtful debts (credit balance 30 June 2019) 1,500 In the past, the company's yearly bad debts expense had been estimated at 2% of net credit sales revenue. It was decided to compare the current method with an...
On 1 July 2019, Entity A entered into the Contract X with a customer, Entity B,...
On 1 July 2019, Entity A entered into the Contract X with a customer, Entity B, to sell Product A for $300 per unit. If Entity B purchases more than 1,000 units of Product A in a 12-month period, Contract X specifies that the price will be reduced to $250 per unit. Entity B agreed to settle all outstanding amount of Contract X in July 2020 when both Entities agreed with the total units of sales on 30 June 2020....
Individual Assignment ACC705 On 1 July 2015, Tuna Ltd acquired all the issued shares of Brim...
Individual Assignment ACC705 On 1 July 2015, Tuna Ltd acquired all the issued shares of Brim Ltd. Tuna Ltd paid $30 000 in cash and 20 000 shares in Tuna Ltd valued at $3 per share. At this date, the equity of Brim Ltd consisted of $66 000 share capital and $6000 retained earnings.    At 1 July 2015, all the identifiable assets and liabilities of Brim Ltd were recorded at amounts equal to their fair values except for: Carrying...
Exam 2 Softbyte Inc. Balance Sheet December 31, 2012 Assets Cash $500,000 Accounts Receivable 700,000 Inventory...
Exam 2 Softbyte Inc. Balance Sheet December 31, 2012 Assets Cash $500,000 Accounts Receivable 700,000 Inventory 300,000 Property, Plant & Equipment 900,000 Accumulated Depreciation (100,000) Total Assets $2,300,000 Liabilities & Equity Accounts Payable $300,000 Notes Payable 1,000,000 Common Stock 500,000 Retained Earnings 500,000 Total Liabilities & Equity $2,300,000 Instructions: Open the balances in the T-accounts (general ledger). Post the journal entries to the T-accounts (general ledger). Prepare an income statement, statement of retained earnings, balance sheet, and statement of cash...
Framework for the Preparation and Presentation of Financial Statements, the term used with respect to Income...
Framework for the Preparation and Presentation of Financial Statements, the term used with respect to Income which arises in the ordinary course of business is: a. Gain b. Profit c. Sales d. Revenue e. Equity Ltd a Debit amount of $58,300 including 10% GST, was posted to the Accounts Receivable Control account on the last day of 30th June, 2019. Originally, from which Special Journal would this posting of $58,300 most likely have come from? a. Purchases b. Cash Payments...
Revision Questions 1.     Non-Current Assets Provide the journal entries for the following transaction: Matthew built a...
Revision Questions 1.     Non-Current Assets Provide the journal entries for the following transaction: Matthew built a new building to store supplies for his business. The builder charged $250,000, the electrician cost $10,000 and a painter cost 5,000. A compulsory fire safety inspection was conducted and cost $1,000. Matthew is still worried about the building burning down and has purchased 12 months insurance for $10,000 which covers the value of the building in case of destruction. Matthew calculated that the above...
PREPARE JOURNAL ENTRIES FOR THE FOLLOWING. 1. January 2: Mr. Burns opened up his new company...
PREPARE JOURNAL ENTRIES FOR THE FOLLOWING. 1. January 2: Mr. Burns opened up his new company and dissolved the old one. The balances of the accounts (with the exception of fixed assets and uncollectible) were transferred over from the old business. Mr. Burns decided that he needed to invest more money into the business in order to get operational. Mr. Burns invested $2,120,000 to create stock. 2. January 3: Mr. Burns bought a cookie making machine for $500,000 from Cookie...
ADVERTISEMENT
Need Online Homework Help?

Get Answers For Free
Most questions answered within 1 hours.

Ask a Question
ADVERTISEMENT