On 1 July, 2003 Bryson Ltd sells a machine to Adams Ltd in exchange for a promissory note which requires Adams Ltd to make five payments of $8,000, the first to be made on 30 June, 2004. The machine cost Bryson Ltd $20,000 to manufacture. Bryson Ltd would normally sell this type of machine for $30,326 for cash or short-term credit. The implicit interest rate in the agreement is 10 per cent. What are the appropriate journal entries to record the sale agreement and the first two instalments using the net-interest method?
E) None of the given answers.

Question

Quizplus · Accepted Answer

- To record the sale agreement:
   - Debit Notes Receivable = $40,000 (5 x $8,000)
   - Credit Sales Revenue = $30,326
   - Credit Interest Receivable = $9,674 ($30,326 - $20,000)
- To record the first instalment:
   - Debit Cash = $8,000
   - Debit Interest Receivable = $967.40 ($30,326 x 10% x 274/360)
   - Credit Notes Receivable = $7,032.60 ($8,000 - $967.40)
- To record the second instalment:
   - Debit Cash = $8,000
   - Debit Interest Receivable = $703.26 ($30,326 - $8,000 - $967.40 x 10% x 365/360)
   - Credit Notes Receivable = $7,296.74 ($8,000 - $703.26)

On 1 July, 2003 Bryson Ltd Sells a Machine to Adams