Question

Question 1 (

On September 1, Year 1, Beta Ltd. provided services to Alpha Inc. In payment, Beta accepted $8,000 cash and agreed to receive the balance in four equal installments of $10,000 that are due each August 31st. An interest rate of 4% is applicable. Beta’s year end is December 31st and reports using IFRS. Required: Prepare the required journal entries for the fiscal Year 1 and Year 2 (round to nearest dollar)

Answer 1

On September 1, Year 1

1. Alpha a/c dr $ 48,000

   To    Sales a/c    $ 48,000

( Being services provided to Alpha ltd )

2.Cash a/c dr    $ 8,000

   To    Alpha a/c    $ 8,000

( Being cash received from Alpha ltd )

On December 31, Year 1

1. Alpha a/c    dr    $ 533

To    Interest receivable    $ 533

( Being interest receivable from Alpha ltd accounted )

On August 31, Year 2

2.Cash a/c    dr    $ 11,600

   To Alpha a/c    $ 11,600

( Being cash received from alpha ltd )

On December 31, Year 2

1.Alpha ltd a/c dr $ 400

   To Interest receivable    $ 400

( being interest receivable from Alpha ltd for the second year accounted )

2.Cash a/c    dr    $ 11,200

To Alpha a/c    $ 11,200

( Being cash received from alpha ltd )

Interest Calculations:

Interest for first year end -    ($ 40,000*4%*4)/12

   = $ 533

Interest upto August 31 = $ 40,000*4%

   = $ 1,600

Interest for Second year-    ($ 30,000*4%*4)/12

   = $ 400

Interest upto August 31 = $ 30,000*4%

   = $ 1,200