On 1 July 2013 Bigwell Plc Sells a Machine to Archer

question 30

Multiple Choice

On 1 July 2013 Bigwell Plc sells a machine to Archer Plc in exchange for a promissory note that requires Archer Plc to make five payments of €8000,the first to be made on 30 June 2014.The machine cost Bigwell Plc €20 000 to manufacture.Bigwell Plc would normally sell this type of machine for €30 326 for cash or short-term credit.The implicit interest rate in the agreement is 10%.What are the appropriate journal entries to record the sale agreement and the first two instalments using the gross method?

• A) \[\begin{array}{l}
• 1 \text { July } 2013\\
• \begin{array} { | c | l | r | r | }
• \hline \mathrm { Dr } & \text { Note receivable } & 40000 & \\
• \hline \mathrm { Cr } & \text { Sales } & & 40000 \\
• \hline & & & \\
• \hline \mathrm { Dr } & \text { Cost of sales } & 20000 & \\
• \hline \mathrm { Cr } & \text { Inventory } & & 20000 \\
• \hline & & & \\
• \hline 30 \text { June } 2014 & & \\
• \hline \mathrm { Dr } & \text { Cash } & 8000 & \\
• \hline \mathrm { Cr } & \text { Note receivable } & & 8000 \\
• \hline & & & \\
• \hline \mathrm { Dr } & \text { Note receivable } & 3033 & \\
• \hline \mathrm { Cr } & \text { Interest revenue } & & 3033 \\
• \hline & & & \\
• \hline 30 \text { June } 2015 & & \\
• \hline \mathrm { Dr } & \text { Cash } & 8000 & \\
• \hline \mathrm { Cr } & \text { Note receivable } & & 8000 \\
• \hline & & & \\
• \hline \mathrm { Dr } & \text { Note receivable } & 2536 & \\
• \hline \mathrm { Cr } & \text { Interest revenue } & & 2536 \\
• \hline
• \end{array}
• \end{array}\]
• B) \(\begin{array}{l}
• 1 \text { July } 2013\\
• \begin{array}{|l|l|r|r|}
• \hline \mathrm{Dr} & \text { Note receivable } & 40000 & \\
• \hline \mathrm{Cr} & \text { Sales } & & 30326 \\
• \hline \mathrm{Cr} & \text { Unearned revenue } & & 9674 \\
• \hline\\
• \hline\mathrm{Dr} & \text { Cost of sales } & 20000 & \\
• \hline \mathrm{Cr} & \text { Inventory } & & 20000\\
• \hline\\
• \hline 30 \text { June } 2014 & & \\
• \hline \mathrm{Dr} & \text { Cash } & 8000 & \\
• \hline \mathrm{Cr} & \text { Note receivable } & & 8000 \\
• \hline\\
• \hline \mathrm{Dr} & \text { Interest revenue } & 4000 & \\
• \hline \mathrm{Cr} & \text { Unearned revenue } & & 4000 \\
• \hline\\
• 30 \text { June } 2015 & & \\
• \hline \mathrm{Dr} & \text { Cash } & 8000& \\
• \hline \mathrm{Cr} & \text { Note receivable } & &8000 \\
• \hline & & & \\
• \hline \mathrm{Dr} & \text { Interest revenue } & 3600& \\
• \hline \mathrm{Cr} & \text { Unearned revenue } & & 3600 \\
• \hline
• \end{array}
• \end{array}\)
• C) \(\begin{array}{l}
• 1 \text { July } 2013\\
• \begin{array}{|l|l|r|r|}
• \hline \mathrm{Dr} & \text { Note receivable } & 40000 & \\
• \hline \mathrm{Cr} & \text { Sales } & & 30326 \\
• \hline \mathrm{Cr} & \text { Unearned revenue } & & 9674 \\
• \hline\\
• \hline \mathrm{Dr} & \text { Cost of sales } & 20000 & \\
• \hline \mathrm{Cr} & \text { Inventory } & & 20000 \\
• \hline\\
• \hline 30 & \text { June } 2014 & & \\
• \hline \mathrm{Dr} & \text { Cash } & & \\
• \hline \mathrm{Cr} & \text { Note receivable } & & 8000 \\
• \hline & & & \\
• \hline \mathrm{Dr} & \text { Unearned revenue } & 3033 & \\
• \hline \mathrm{Cr} & \text { Interest revenue } & & 3033 \\
• \hline\\
• \hline30 \text { June } 2015 & & \\
• \hline \mathrm{Dr} & \text { Cash } & 8000& \\
• \hline \mathrm{Cr} & \text { Note receivable } & &8000 \\
• \hline & & & \\
• \hline \mathrm{Dr} & \text { Unearned revenue } & 2536 & \\
• \hline \mathrm{Cr} & \text { Interest revenue } && 2536 \\
• \hline
• \end{array}
• \end{array}\)
• D) \(\begin{array}{l}
• 1 \text { July } 2013\\
• \begin{array}{|c|l|r|r|}
• \hline \mathrm{Dr} & \text { Note receivable } & 30326 & \\
• \hline \mathrm{Cr} & \text { Sales } & & 30326 \\
• \hline & & & \\
• \hline \mathrm{Dr} & \text { Cost of sales } & 20000 & \\
• \hline \mathrm{Cr} & \text { Inventory } & & 20000 \\
• \hline\\
• \hline 30 \text { June } 2014 & & \\
• \hline \mathrm{Dr} & \text { Cash } & 8000 & \\
• \hline \mathrm{Cr} & \text { Note receivable } & & 4967 \\
• \hline \mathrm{Cr} & \text { Interest revenue } & & 3033 \\
• \hline\\
• \hline 30 & \text { June } 2015 & & \\
• \hline \mathrm{Dr} & \text { Cash } & 8000 & \\
• \hline \mathrm{Cr} & \text { Note receivable } & & 4497 \\
• \hline \mathrm{Cr} & \text { Interest revenue } & & 3503 \\
• \hline
• \end{array}
• \end{array}\)

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Definitions:

Forearm

The part of the arm between the wrist and the elbow.

Elbow

The elbow is the joint that connects the upper arm to the forearm, allowing for the bending and straightening of the arm.

Wrist

The joint connecting the forearm to the hand, consisting of eight small bones and allowing for a wide range of movement.

Pectoral Girdle

The set of bones that anchors the upper limbs to the torso, consisting of the clavicles and scapulae.