Question

Arctic Cat sold Seneca Motor Sports a shipment of snowmobiles. The snowmobiles were delivered on January 1, 2021, and Arctic received a note from Seneca indicating that Seneca will pay Arctic $46,200 on a future date. Unless informed otherwise, assume that Arctic views the time value of money component of this arrangement to be significant and that the relevant interest rate is 9%. (FV of $1, PV of $1, FVA of $1, PVA of $1, FVAD of $1 and PVAD of $1) (Use appropriate factor(s) from the tables provided.)

Required:

1. Assume the note indicates that Seneca is to pay Arctic the $46,200 due on the note on December 31, 2021. Prepare the journal entry for Arctic to record the sale on January 1, 2021.

2. Assume the same facts as in requirement 1, and prepare the journal entry for Arctic to record collection of the payment on December 31, 2021.

3. Assume instead that Seneca is to pay Arctic the $46,200 due on the note on December 31, 2022. Prepare the journal entry for Arctic to record the sale on January 1, 2021.

4. Assume instead that Arctic does not view the time value of money component of this arrangement to be significant, and that the note indicates that Seneca is to pay Arctic the $46,200 due on the note on December 31, 2021. Prepare the journal entry for Arctic to record the sale on January 1, 2021.

Answer 1

1) 46,200* (1/1.09)= 42,385.321100917  or 46,200/ 1.09= 42,385

46,200- 42,385= 3,815

Answer:  dr. notes recievable   46,200

                 cr. sales revenue:                  42,385

                 cr. discount on N/R                  3,815

2) Answer:

          Dr. discount on notes recievable(n/r)  3,815

          dr. cash                                               46,200

                                    Cr. notes recievable               46,200

                                    cr. interest revenue                 3,815    

3) 46,200/ (1.09^2)= 38,885.615688915

Answer:

    dr. notes recievable    46,200

       cr. discount on N/R              7,315=  46,200-38,855

       cr. sales revenue                 38,885

4) Answer:

    Dr. Notes recievable    46,200

       cr. sales revenue                  46,200