Sumarah Corp. accepted a $450,000 two year note receivable from a customer in connection with a major
Question:
Sumarah Corp. accepted a $450,000 two year note receivable from a customer in connection with a major inventory sale transaction on 1 October 20X5. The note was interest free, although market interest rates were in the range of 8%.
Required:
1. Can the company record a sale for $450,000? Explain.
2. Calculate the present value of the note, and prepare a schedule that shows the annual interest using the effective interest method. Prepare a second schedule using the straight line method.
3. Compare the two alternate measures of interest revenue as calculated in requirement 2. Which is more accurate? Explain. What method(s) are permitted under ASPE? IFRS?
4. Prepare journal entries to record the initial sale transaction and each payment on the books of Sumarah, using the straight line method. Use the gross method to record the note.
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Requirement 1 No the company cannot record a sale for 450000 as this amount includes interest and pr...View the full answer
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A journal entry is an act of keeping or making records of any transactions either economic or non-economic. Transactions are listed in an accounting journal that shows a company\'s debit and credit balances. The journal entry can consist of several recordings, each of which is either a debit or a credit
