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Revenue includes a $3 million sale made on 1 January 2017 of goods. The carrying amount of these goods at the date was $2 million. NOL is still in procession of the goods (but they have not been included in the inventory count) and has an unexercised option to repurchase them at any time in the next three years. In three years’ time the goods are expected to be worth $4 million. The repurchase price will be the original selling price plus interest at 10% per annum from the date of sale to the date of repurchase.
1-Jan-17 Dr. Cash 3,000,000
Cr. Loan payment 3,000,000Dr. Interest Expenses (3,000,000 x 10% x 6/12) 150,000
Cr. Loan payment 150,000Dr. Inventory 2,000,000
Cr. Cost of Sales 2,000,000Is it right?
It’s close!
First, we need to remove from revenue this supposed “sale”
Dr Revenue $3,000,000
Cr Cash $3,000,000Now we need to record the receipt of the loan
This you have done but I think the credit entry should simply be “loan” and not ” loan payment”
1-Jan-17
Dr. Cash 3,000,000
Cr. Loan 3,000,000The NET effect of these 2 entries is therefore
Dr Revenue $3,000,000
Cr Loan $3,000,000Your second entry should be dated (30 June, 2017 – you haven’t told me but from your workings I assume the year end is 30 June!) but you’re not likely to be asked for journal entries in the exam
Your entry is correct otherwise
Dr. Interest Expenses (3,000,000 x 10% x 6/12) 150,000
Cr. Loan payment 150,000And so is this final entry correct
Dr. Inventory 2,000,000
Cr. Cost of Sales 2,000,000OK?
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