Question

IU с D E А B Arctic Cat sold Seneca Motor Sports a shipment of snowmobiles at an agreed-upon price of $38,000. The snowmobiles were delivered on January 1, 2021, and Arctic received a note from Seneca indicating that Seneca will pay Arctic $41,800 on December 31, 2021. Arctic views the time value of money component of this arrangement to be significant and that the relevant interest rate is 10% Required: 1. Prepare Artic Cat's journal entries at January 1, 2021 to record the sale. 2. Prepare Artic Cat's journal entries at December 31, 2021 to record the payment 5 from Seneca 5 7 Entry on January 1, 2020: 8 9 Account 10 Debit Credit 1 1 1 Account Debit Credit 12 13 14 15 Entry on December 31, 2020: 16 17 18 19 20 21 22 23 24 25 26 27 28 29 NNNN

Answer 1

1. Journal Entries -

Arctic Cat Journal Entries Date Accounts Title Debit Credit 2020 Jan 1 Notes Receivable $ 38,000 Deferred Revenue $ 38,000 (Being Sales Revenue earned and noted signed) Dec 31 Notes Receivable $ 1,900 Interest Revenue $ 1,900 (Being Intrest Accrued) 2021 Jan 1 Deferred Revenue $ 38,000 Sales Revenue $ 38,000 (Being Sales Revenue earned and noted signed) Dec 31 Cash $ 41,800 Interest Revenue Notes Receivable (Being Notes Matured on the date) $ 1,900 $ 39,900

Explanation -

1. In the 1st place buyer has already paid Notes Receivable for the shipment he will be receive after an year hence those revenue has not earned by the seller yet hence those should be consider as "Deferred Revenue".

2. At the end of the year interest should be charged for the notes payable which is income for the seller.

3. When the shipment reached and good delivered then revenue should be booked by the seller.

4. At the end when the notes matures cash and interest will be credited.