Question

A10 fx D E А B On January 1, 2020, Arctic Cat sold Seneca Motor Sports a shipment of snowmobiles that have a fair market value of $44,000. Because of limited space, Seneca wanted to delay delivery until December 31, 2020 but offered to make up-front payment in full) on January 1, 2020. Arctic agreed and as a concession reduced the sales price to $40,000 since Seneca paid 12 months in advance of delivery. So, the contract was: Seneca pays $40,000 cash to Arctic Cat on January 1, 2020 and Arctic Cat delivers the snowmobiles on December 31, 2020. Arctic views the time value of money component of this arrangement to be significant and that the relevant interest rate is 10% Debit Credit 1 2 3 Required: 1. Prepare Artic Cat's journal entries at January 1, 2020 to record the advance 4 payment of $40,000 2. Prepare any entry needed by Artic Cat on December 31, 2020 when the 5 snowmobiles are delivered. 6 7 Entry on January 1, 2020: 8 9 Account 10 11 12 13 14 Entry on December 31, 2020: 15 16 Account 17 18 19 20 21 22 23 1 1 1 Debit Credit NN 2

Answer 1

On Janurary 1

Cash A/C Dr. $40,000

To Deferred Revenue A/C $40,000

On Dec 31

Deferred Revenue A/C Dr. $40,000

To Sales Revenue A/C $40,000

Cash A/C Dr. $4,000

To Interest Revenue A/C $4,000