Question 4

On January 1, 20X4, XYZ Equipment Corp. delivered a road grader and an excavator to a client. Pertinent details of the transaction follow:

• XYZ paid $290,000 for the road grader. It normally sells these graders for $377,000 cash.

• XYZ paid $218,000 for the excavator. It normally sells these excavators for $273,000 cash.

• XYZ received $75,000 cash on delivery of the equipment and accepted a $600,000, threeyear, interest-free note receivable payable at $200,000 per year, first payable on January 1, 20X5.

• The market rate of interest for transactions of this nature is 4% per annum.

XYZ, whose fiscal year end is December 31, prepares its financial statements in accordance with IFRS. It uses the specific identification method to account for inventory. All payments on the notes receivable were made on the scheduled dates. XYZ only prepares accruals and adjusting entries at year end.

Required:

a) Allocate the purchase price between the two deliverables.

b) Prepare XYZ’s journal entries pertaining to the sale of the equipment on January 1, 20X4.

c) Prepare XYZ’s journal entries for each of December 31, 20X4, January 1, 20X5, December 31, 20X5, January 1, 20X6, December 31, 20X6, and January 1, 20X7.

Note: Round all percentages to three significant decimal places (for example, 34.6%) for all calculations. Round all journal entries to the nearest dollar.

Prep-IF1-ASN02