Canadian Accounting Question:

You are a manufacturer of turbines and are a publicly accountable entity. On December 31, 20x0, you made a sale of a turbine to a customer. You estimate that your customers incremental borrowing rate is 6%. Your incremental borrowing rate is 5%.

Required

For each of the following terms of payment, prepare the journal entries for this transaction for the years ended December 31, 20x0, 20x1 and 20x2.

a) The customer will pay $500,000 on December 31, 20x2 and will pay interest of 6% on the $500,000 on December 31, 20x1 and 20x2.

b) The customer will pay $500,000 on December 31, 20x2 and pay no interest in the interim.

c) The customer will pay $500,000 on December 31, 20x2 and will pay interest of 2% on the $500,000 on December 31, 20x1 and 20x2.

d) The customer will pay equal payments of principal and interest over 5 years with the first payment made on December 31, 20x1. The nominal value of the principal at December 31, 20x0 is $500,000. The interest charged is 3%.

e) The customer will pay $500,000 on December 31, 20x2 and pay no interest in the interim. The cash sales price of the turbine would be $450,000.

f) Repeat part (d) on the assumption that you are a private enterprise subject to ASPE and you wish to use the straight-line method.