Question

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

Journal Entries to be made:

Date

General Ledger Name

Debit

Credit

31/10/2016

Receivable A/c---Dr

         400,048

To Revenue A/c

      400,048

(Being sales recorded)

31/10/2016

3% note receivable A/c---Dr

         450,000

To Finance income received in advance A/c

         49,952

To Receivable A/c

      400,048

31/10/2017

Cash A/c---Dr

           13,500

To Interest income A/c

         13,500

(Being interest received)

31/10/2017

Finance income received in advance A/c---Dr

           16,651

To Interest income A/c

         16,651

(Being interest income recorded for financing component)

31/10/2018

Cash A/c---Dr

           13,500

To Interest income A/c

         13,500

(Being interest received)

31/10/2018

Finance income received in advance A/c---Dr

           16,642

To Interest income A/c

         16,642

(Being interest income recorded for financing component)

31/10/2019

Cash A/c---Dr

           13,500

To Interest income A/c

         13,500

(Being interest received)

31/10/2019

Finance income received in advance A/c---Dr

           17,308

To Interest income A/c

         17,308

(Being interest income recorded for financing component)

31/10/2019

Cash A/c—dr

         450,000

To 3% note A/c

      450,000

(Being note collected)

Computation of transaction price-

Sales price

         450,000

Increment rate of borrowing of customer

7%

Rate of interest charged

3%

Interest implicit

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


Related Solutions

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...
The following information is for a copyright owned by Bridgeport Corp., a publicly accountable entity, at...
The following information is for a copyright owned by Bridgeport Corp., a publicly accountable entity, at December 31, 2020. Bridgeport Corp. applies IFRS. Cost $4,304,000 Carrying amount 2,174,000 Expected future net cash flows (undiscounted) 2,043,000 Fair value 1,517,000 Assume that Bridgeport Corp. will continue to use this copyright in the future. As at December 31, 2020, the copyright is estimated to have a remaining useful life of 10 years. The copyright’s value in use is $1,882,000 and its selling costs...
The Magnus Corporation, a publicly accountable entity, had the following investments as at December 31, 20x2:...
The Magnus Corporation, a publicly accountable entity, had the following investments as at December 31, 20x2: Company Type Classification Original Cost Carrying Value Fair Value Will Corp. Shares FVPL $65,000 $61,000 $58,000 Simon Co. Shares FVPL 205,000 212,000 225,000 Craig Inc. Shares FVOCI 82,000 88,000 106,000 Frey Inc. Shares FVOCI 94,000 80,000 88,000 Blandin Co. Bonds FVOCI 210,106 210,106 210,106 The Blandin Co. bonds were purchased on December 31, 20x2. The bonds have a face value of $200,000, pay interest...
On December 31, 20x0, a publicly accountable entity issued convertible bonds for total cash proceeds of...
On December 31, 20x0, a publicly accountable entity issued convertible bonds for total cash proceeds of $21,200,000. The bonds mature on December 31, 20x20 and each bond is convertible at the option of the bondholders at any time. Each $1,000 bond is convertible into 20 common shares. The face value of the bonds is $20,000,000 and pay an annual coupon of 3%. Coupon payment dates are June 30 and December 31. Bonds of similar risk would have yielded 2.8%. Required...
The Timmons Corporation, a publicly accountable entity, exchanged an office building for a strip mall with...
The Timmons Corporation, a publicly accountable entity, exchanged an office building for a strip mall with an unrelated organization. Data on the two properties are as follows: Office Building Strip Mall Original Cost $1,600,000 $1,300,000 Accumulated depreciation 1,100,000 750,000 Fair value 900,000 850,000 Required – a) Prepare the journal entry to record the exchange on the books of Timmons on the assumption that the transaction has commercial substance. b) Prepare the journal entry to record the exchange on the books...
The Cassidy Corporation, a publicly accountable entity, made an accounting policy choice to use the revaluation...
The Cassidy Corporation, a publicly accountable entity, made an accounting policy choice to use the revaluation model for land and buildings. Cassidy has only one parcel of land and one building. Both were purchased on December 31, 20x0. The building has a useful life of 30 years with no residual value. Details on original cost and fair values follows:   Land Building Original Cost (Dec 31, 20x0) $300,000 $15,00,000 Fair Values - Dec 31,20x2 340,000 1,350,000    Dec 31, 20x5 280,000...
Everything Equine Corp. (EEC) is a publicly accountable enterprise that specializes in providing horse-related goods and...
Everything Equine Corp. (EEC) is a publicly accountable enterprise that specializes in providing horse-related goods and services to horse owners. EEC commenced operations on January 1, 20X2. Select details of transactions with respect to EEC’s property, plant and equipment (PPE) and intangible assets are as follows: April 1, 20X2 - EEC purchased the PPE of a company in financial distress for $1,800,000 and immediately brought it into use. At the time of purchase, an independent appraiser provided the following valuation...
On January 1, 2020, an entity sold a car to a customer at a price of...
On January 1, 2020, an entity sold a car to a customer at a price of P320,000 with a production cost of P240,000. It is the entity’s policy to employ installment method to recognize gross profit from installment sales. At the time of sale, the entity received cash amounting to 25% of the selling price and old car with trade-in allowance of P40,000. The said old car has fair value of P120,000. The customer issued a 5-year note for the...
Clara Corp. is a publicly traded entity. On January 1, 20X3, it is trying to decide...
Clara Corp. is a publicly traded entity. On January 1, 20X3, it is trying to decide whether to grant equity-settled stock options or cash-settled share appreciation rights (SARs) to its employees. Its bank loan has a debt-to-asset covenant that must be maintained and the board of directors is concerned about the impact these compensation plans will have on this covenant. The directors are considering two alternatives as described below: 1. Grant 20,000 equity-settled stock options to its management team. Relevant...
Question 2 (15 marks) Part A Luxury Living Concepts Corp. (LLC) is a publicly accountable enterprise...
Question 2 Part A Luxury Living Concepts Corp. (LLC) is a publicly accountable enterprise that builds large complexes, including schools, office towers, apartment buildings and shopping centres, on a contract basis. Additional information with respect to the company is as follows: - LLC’s year end is December 31. - The company uses the cost-to-cost approach to determine the stage of completion of its construction projects. - The enterprise rounds the percentage of completion to two decimal places (for example, 13.54%)....
ADVERTISEMENT
ADVERTISEMENT
ADVERTISEMENT