Hi, first I wanna say that the answer is ALREADY GIVEN for both examples, but I have a small confusion. In the 1st example for December 31,2018 we took 10% of 110,000(100,000+ 10,000 interest) = 11,000. However, in the 2nd example for June 30, 2015, why didn't we do the same? take 6% of (40,000 + 1200 interest x 6/12 months) = 1236? instead, the solution took 6% of 40,000 AGAIN= 40,000 x 6%=1200 WITHOUT adding the 1200 interest first like in the 1st example? why?

I understand everything else, but I'm just lost on why we didn't add the 1200 interest to the 40,000 and THEN multiply by 6% like in the 1st example. please help and thanks in advance!

NOTE: Here "repurchase obligation" and "liability to lane" mean the same thing, it's just that the 2nd example likes to call it repurchase obligation instead.

REPURCHASE AGREEMENT ystem. km XmiTextRe tFacts: Morgan Inc., an equipment dealer, sells equipment on January 1, 2017, to Lane Company for $100,000. It agrees to repurchase this equipment (an unconditional obligation) from Lane Company on December 31, 2018, for a price of $121,000.hemaError tQuestion: Should Morgan Inc. record a sale for this transaction? at steSolution: For a sale and repurchase agreement, the terms of the agreement need to be analyzed to gdetermine whether Morgan Inc. has transferred control to the customer, Lane Company. As indicated at steearlier, control of an asset refers to the ability to direct the use of and obtain substantially all the jubenefits from the asset. Control also includes the ability to prevent other companies from directing the use of and receiving the benefit froma good or service. In this case, Morgan Inc. continues to have stem control of the asset because it has agreed to repurchase the asset at an amount greater than the selling price. Therefore, this agreement is a financing transaction and not a sale. Thus, the asset is not removed from the books of Morgan Inc. ste.Confi Assuming that an interest rate of 10% is imputed from the agreement, Morgan Inc. makes the tfollowing entries to record this agreement. Morgan Inc. records the financing on January 1, 2017, as dio follows. at S ctionName, Boolea at ste Configuration Cashettings gsdntext.context, Sett Liability to Lane Company at ings(String January 1, 2017 100,000 s Setti vider.Ge 100,000 steMorgan Inc. records interest on December 31, 2017, as follows. ovidr provider at S ope at stem.Configuratinterest Expense mstrin at stenConfiguration.Appli opetyMorgan Inc. records interest and retirement of its liability to Lane Company as follows. t Sstem.Configuration.Application ope tyName at ttings perty December 31, 2017 figura 10,000 Liability to Lane Company ($100,000 x 10%) 10,000 December 31, 2018 at Free Snipping Tonterest ExpenseetoutputFolder 11,000 Liability to Lane Company ($110,000 x 10%) Liability to Lane Company Cash ($100,000 $10,000$11,000) at ay Boolean 11,000 121,000 121,000 Cramer Corp. sells idle machinery to $40,000. Cramer agrees to repurchase this equipment from Enyart on June 30 2015, for a price of $42,400 (an imputed interest rate of 6%) Enyart Company on July 1, 2014, for This is not a sale but, rather, a financing agreement. Cramer is borroving money from Enyart and using the machinery as a sort of collateral. Cramer is obligated to 'repurchase the equipment and, thus, has not transferred control or risk and rewards of onership. The terms of the contract suggest strong that Cramer has a contract liabilitu not sales revenue. (a) Prepare the journal entry for Cramer for the transfer of the asset to Enyart on July 1, 2014 Cash 40,000 Repurchase Obligation 40,000 Mch. under Possessi Machinery cost] cost] (b) Prepare any other necessary journal entries for Cramer at year-end for 2014 Interest Expense Repurchase Obligation 1,200 1,200 (c.) Prepare the journal entry for Cramer vhen the machinery is repurchased on June 30, 2015 Interest Expense Repurchase Obligation 1,200 1,200 Repurchase Obligatic 42,400 Cash 42,400 cost Machinery Machinery under Possesion cost] REPURCHASE AGREEMENT ystem. km XmiTextRe tFacts: Morgan Inc., an equipment dealer, sells equipment on January 1, 2017, to Lane Company for $100,000. It agrees to repurchase this equipment (an unconditional obligation) from Lane Company on December 31, 2018, for a price of $121,000.hemaError tQuestion: Should Morgan Inc. record a sale for this transaction? at steSolution: For a sale and repurchase agreement, the terms of the agreement need to be analyzed to gdetermine whether Morgan Inc. has transferred control to the customer, Lane Company. As indicated at steearlier, control of an asset refers to the ability to direct the use of and obtain substantially all the jubenefits from the asset. Control also includes the ability to prevent other companies from directing the use of and receiving the benefit froma good or service. In this case, Morgan Inc. continues to have stem control of the asset because it has agreed to repurchase the asset at an amount greater than the selling price. Therefore, this agreement is a financing transaction and not a sale. Thus, the asset is not removed from the books of Morgan Inc. ste.Confi Assuming that an interest rate of 10% is imputed from the agreement, Morgan Inc. makes the tfollowing entries to record this agreement. Morgan Inc. records the financing on January 1, 2017, as dio follows. at S ctionName, Boolea at ste Configuration Cashettings gsdntext.context, Sett Liability to Lane Company at ings(String January 1, 2017 100,000 s Setti vider.Ge 100,000 steMorgan Inc. records interest on December 31, 2017, as follows. ovidr provider at S ope at stem.Configuratinterest Expense mstrin at stenConfiguration.Appli opetyMorgan Inc. records interest and retirement of its liability to Lane Company as follows. t Sstem.Configuration.Application ope tyName at ttings perty December 31, 2017 figura 10,000 Liability to Lane Company ($100,000 x 10%) 10,000 December 31, 2018 at Free Snipping Tonterest ExpenseetoutputFolder 11,000 Liability to Lane Company ($110,000 x 10%) Liability to Lane Company Cash ($100,000 $10,000$11,000) at ay Boolean 11,000 121,000 121,000 Cramer Corp. sells idle machinery to $40,000. Cramer agrees to repurchase this equipment from Enyart on June 30 2015, for a price of $42,400 (an imputed interest rate of 6%) Enyart Company on July 1, 2014, for This is not a sale but, rather, a financing agreement. Cramer is borroving money from Enyart and using the machinery as a sort of collateral. Cramer is obligated to 'repurchase the equipment and, thus, has not transferred control or risk and rewards of onership. The terms of the contract suggest strong that Cramer has a contract liabilitu not sales revenue. (a) Prepare the journal entry for Cramer for the transfer of the asset to Enyart on July 1, 2014 Cash 40,000 Repurchase Obligation 40,000 Mch. under Possessi Machinery cost] cost] (b) Prepare any other necessary journal entries for Cramer at year-end for 2014 Interest Expense Repurchase Obligation 1,200 1,200 (c.) Prepare the journal entry for Cramer vhen the machinery is repurchased on June 30, 2015 Interest Expense Repurchase Obligation 1,200 1,200 Repurchase Obligatic 42,400 Cash 42,400 cost Machinery Machinery under Possesion cost]