Question

Joey Ltd is entering into a contract to sell Motor vehicle spare parts to Rachel Ltd...

  1. Joey Ltd is entering into a contract to sell Motor vehicle spare parts to Rachel Ltd for $20 000. The agreement allows Rachel Ltd to pay for these goods by three equal instalments of $5 000 and the balance remaining payable in the final instalment, the first instalment being required on delivery and the remainder to be paid every 4 months over the coming year. The Motor Vehicle spare parts are delivered to Rachel Ltd on 1 March 2019. Johnson Ltd determine that an appropriate discount rate for interest on this transaction is 8% per annum. The agreement stipulates that the interest revenue is due and payable when each repayment is due.

Narrations are required for this question. Add rows to the answer tables if necessary.

Required

  1. Complete the table below to determine the interest component of the payments.                                                                   
  2. Give the journal entries to record the revenue. Note that giving the correct dates of your journal entries is essential.                    

Date

Opening Balance

Cash receipt

Interest income

Principal reduction

Outstanding balance

Joey Ltd would record the following journal entries.

Date

Account

Debit

Credit
Business   Accounting   
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Answer #1

Date

Opening Balance

Cash receipt

Interest income

Principal reduction

Outstanding balance

Date

Opening Balance

Cash receipt

Interest income

Principal reduction

Outstanding balance

1) The Table below is to determine the interest component of the payments :

Date Opening Balance Cash Reciept Interest Income Principal Reduction Outstanding Balance
1-03-209 20000 5000 1600 - 15000

2) Journal Entries to record the revenue:

Date Account Debit Credit
1st March 2019

Cash (Received to Joey)

(Recieved cash by selling Motor Cycle to Rachel)

 5000

5000
1ST July 2019

To Cash(Recieved toJoey)

By Rachel

 5000

5000
1st November 2019

Cash ( to Joey)

By Rachel

5000

5000
1st March 2020

Cash (To Joey)

By Rachel

 5000

5000
1st July

Cah (Final Installment)

Interest (Year)

By Rachel

5000

1600

6600

Total Amount

 21600

21600
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