On April 1, 2018, JS Co. sold equipment to JL Co. Service in exchange for a...

On April 1, 2018, JS Co. sold equipment to JL Co. Service in exchange for a zerointerest bearing note with a face value of €109,000, with payment due in 12 months. The cost of goods sold is € 58,000. The fair value of the equipment on the date of sale was €100,000.

A- Record the entry showing how much revenue should JS Co. record on April 1, 2018.

B- Record the entry showing how much revenue should it report related to this transaction on December 31, 2018.

Solutions

Expert Solution

In the given case, the JS Co sold equipment to JL Co

Sale value = €109000

Cost of goods sold = €58000

Fair value = €100000

Journal entries :-

Date	Particulars	debit (€)	Credit (€)
1st April 2018	note receivable	109000
	To sales		109000
	(Being equipment sold and received note receivable)
31st December 2018	income summary	58000
	To cost of goods sold		58000
	(Being cost of goods sold transfered to income statement)
	Sales	109000
	To income summary		109000
	(Being sales transfered to income summary)

Income to be reported on 31-12-2018 is €109000

Net income to be recorded = €109000 - €58000

= €51000

Information regarding the fair value is irrelevant for the seller for recording the transactions.

In the given case the sold item was treated as goods to seller but not as equipment and this is the reason for not considering the fair value of the item. Reason for taking like this is in the given question it is said that cost of goods sold but not as cost of asset.

These are all the information required to solve the given question.

If there is any clarifications required regarding the above provided answer, please mention them in comment box.

I hope, all the above mentioned information and explanations are useful and helpful to you.

Thank you.

ekkarill92 answered 1 year ago

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