Question

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% Required: 1. Prepare Artic Cat's journal entries at January 1, 2020 to record the advance payment of $40,000. 2. Prepare any entry needed by Artic Cat on December 31, 2020 when the snowmobiles are delivered. Entry on January 1, 2020:

Answer 1

Answer :

1) Artic cat's journal entry at January 1, 2020 for payment received :

Date	Account title	Debit	Credit
Jan 1, 2020	Cash	$ 40,000
	Discount allowed	$ 4,000
	Revenue		$ 44,000

2) No entry required at 31 December 2020 because risk and Rewards are transferred to buyer at the time of sale only, delay in delivery according to the buyer convenience will not create an obligation for seller to record any entry at the time of delivery.