Johnson Ltd is entering into a contract to sell boat products to Fisher Ltd for $50 000. The agreement allows Fisher Ltd to pay for these goods by equal instalments, the first instalment being required on delivery and the remainder to be paid every 6 months for the next 2 years. The boat products are delivered to Fisher Ltd on 1 January 2020. Johnson Ltd determine that an appropriate discount rate for interest on this transaction is 5% per annum. [The picture attached is a part of solutions to the question above. Can you give me the formula or workings of column 'Cash receipt' and column 'interest income'? how do they be calculated? And why is interest income recognised on 31 December each year? ]

To provide the journal entries for Johnson Lid, we need to determine the interest component of the instalment payments. The easiest way to do this is to draw up a table, as shown below. Date Opening balance Cash receipt Interest income Principal reduction Outstanding balance 1 Jan 2020 50 000 12 967 37 033 1 Jul 2020 37 033 12 967 926 12 041 24 992 1 Jan 2021 24 992 12 967 625 12 342 12 650 1 Jul 2021 12 650 12 967 317 12 650 0 51 868 1 868 37 033 Now do the journal entries for the ended 31 December 2020 - Interest income is recognised on the 31 December each year