Question)

Neville Ltd enters into a contract to sell boat products to Patton Ltd for $300,000. The agreements allows Patton Ltd to pay for these goods by four equal instalments, the first instalment being required on deliver and the remained to be paid by equal instalments every 6 months. The boat products are delivered to Patton Ltd on 1 January 2020. Neville Ltd determines that an appropriate discount rate for transaction is 12% per annum.

Required:

Prepare the journal entries by Neville Ltd to record these transactions on:

Solution:

1) 1 January 2020

2) 30 June 2020

PV of Annuity - 3.4 *

Annual Cash Flows - 75000

PV of Cash Flows - 255000

January 1 Entry -

Notes Receivable - 300000

Sales - 255000

Unearned Interest Income - 45000

Cash - 75000

Notes Receivable - 75000

( To record the first payment of NR)

June 30 Entry -

Cash - 75000

Notes Receivable- 64200

*Interest Income - 10800

Disclosures

* PV of Annuity is used since the payment starts at the sale. Had it been after one period the payment starts, ordinary annuity would have been used.

Interest Income

(255K-75K)*0.12/2

Hi, can you please check if this solution is correct or not?

I have provided the solution above. Thanks.