On January 1, Year 1, Sam Co. entered into a contract with a customer to sell a machine for two annual payments of $144,049 starting at the end of Year 1. The customer obtains control of the machine at contract inception. The cash selling price of the machine is $250,000. Sam determined that (1) the contract includes a significant financing component and (2) the contract includes an implicit interest rate of 10%. What amounts of revenue and interest income from this contract, if any, were recognized by Sam in Year 2?

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TomShelby TomShelby · Answer 1 · 2019-09-05T19:55:32+02:00

Answer:

interest revenue 13,095.1

Explanation:

We will calcualte the loan interest:

first year

machine value x interest rate = interest revenue first year

250,000 x 10% = 25,000 interest revenue for the first year

cuota - interest = amortization

144,049 - 25,000 = 119.049‬ amortization

carrying value

250,000 - 119,049 = 130.951‬

second year

carrying value x interest

130,951 x 10% = 13,095.1 interest revenue for the second year

amortization

144,049 - 13,095.1 = 130.953,9

For the second year, the interest revenue will be of 13,095.1