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In: Accounting

On October 31, 2016, Quesnell Corp. (QC), a publicly accountable entity, sold inventory to a customer...

On October 31, 2016, Quesnell Corp. (QC), a publicly accountable entity, sold inventory to a customer in exchange for a $ 450,000, three-year, 3% note receivable. QC’s incremental borrowing rate at the inception of the note receivable was 4%, and the customer’s incremental borrowing rate was 7%. QC’s original cost of the inventory sold was $325,000.


QC collected the note in full on October 31, 2019. Interest was received annually on October 31, and the first interest payment was received on October 31, 2017, as per the terms of the note.

QC has a year end of October 31.

Required:
Prepare the journal entries relating to this transaction for the full three-year period from October 31, 2016, to October 31, 2019.

Solutions

Expert Solution

Computation of transaction price
Sales price 450,000
Customer's incremental borrowing rate 7%

Rate of interest charged

Interest implicit

3%

4%
PV factor of 4% for 3 years 0.89
Transaction price to be recorded 400,048
Interest to be accounted-
Year 1 16,002
Year 2 16,642
Year 3 17,308

ekkarill92 answered 2 years ago
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