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Financial Reporting 2nd Edition. Case Study 15.1 - Payment by Installment Hello, I do...

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Accounting

Financial Reporting 2nd Edition. Case Study 15.1 - Payment by Installment

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Hello, I do not understand this solution to the question. How was the number 51,868 calculated?

Case study 15.1 Payment by instalment Johnson Ltd is entering into a contract to sell boat products to Fisher Ltd for S50 000. The agreement allows Fisher Ltd to pay for these goods by equal instalments, the first instalment being required on delivery and the remainder to be paid every 6 months for the next 2 vears. The boat products are delivered to Fisher Ltd on 1 January 2020 Johnson Ltd determine that an appropriate discount rate for interest on this transaction is 5% per annum Required Advise Johnson Ltd on how the company is to account for the revenue from this transaction Answer: To provide the journal entries for Johnson Ltd, we need to determine the interest component of the instalment payments. The easiest way to do this is to draw up a table, as shown below Date Cash receipt 12 967 12 967 12 967 12 967 51 868 Interest Principal Outstanding Opening balance 50 000 37 033 24 992 12 650 income reduction 1 Jan 2020 1 Jul 2020 1 Jan 2021 1 Jul 2021 926 625 317 1868 12 041 12 342 12 650 37 033 balance 37 033 24 992 12 650

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