Whitelock Ltd sells a machine for making rugby balls to the Australian Rugby Union on 1 July 2017

Accounting Jan 20, 2021

Whitelock Ltd sells a machine for making rugby balls to the Australian Rugby Union on 1 July 2017. The machine normally sells for $110,000, but to support rugby in Australia Whitelock Ltd agrees to payment terms of 5 annual payments (in arrears) of $26,379.75. The borrowing rate for the Australian Rugby Union is 10%.

Required:

For Whitelock Ltd you are required to:

Prepare the journal entry on 1 July 2017 to record the sale

The answers say it's debit receivables of $100,000 and credit revenue of $100,000. Can someone explain how and why the PV of the annual payment is $100,000? Thank you!

Expert Solution

Annual Payments = $26379.75

Interest rate = 10%

Present Value = Annual payment * Present value factor for 5 years @10%

Present value factor for 5 years @10% = 3.79079

= $26379.75 * 3.79079 = $100000

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