a) X Ltd is entering into a contract to sell Bicycles to Y Ltd for $30 000.
Question:
a) X Ltd is entering into a contract to sell Bicycles to Y Ltd for $30 000. The agreement allows Y Ltd to pay for these goods by six instalments; Five instalments of $5 000 and the balance remaining payable in the final instalment, the first instalment being required on delivery and the remainder to be paid every month for the next 5 months. The Bicycles are delivered to Y Ltd on 1 January 2020. X Ltd determines that an appropriate discount rate for interest on this transaction is 5% per annum. Interest income is recognised at the end of each of the monthly repayment periods.
Narrations are required for this question.
Required
- Complete the table below to determine the interest component of the payments. (Financial year starts July to June)
- Give the journal entries to record the revenue. Note that giving the correct dates of your journal entries is essential.
Answer sheet for question part(a)
Date | Opening Balance | Cash receipt | Interest income | Principal reduction | Outstanding balance |
International Business Law and its Environment
ISBN: 9781305972599
10th edition
Authors: Richard Schaffer, Filiberto Agusti, Lucien J. Dhooge