Zahava Corporation sells equipment to Ari Company for $700,000. Ari does not nee

Question

Zahava Corporation sells equipment to Ari Company for $700,000. Ari does not need the equipment until December 31, 2021, but agrees to pay $600,000 immediately on December 31, 2019, in order to assist Zahava with its finances. The remaining $100,000 is due upon delivery on December 31, 2021. Zahava typically can borrow at 5%.

1. Prepare the journal entry Zahava makes to record the receipt of $600,000 on December 31, 2019.

2. Prepare the journal entry, if any, Zahava makes in 2020.

3. Prepare the journal entry Zahava makes to record delivery of goods and collection of the remaining $100,000 on December 31, 2021.

Explanation / Answer

Journal entries in the books of Zahava Corporation Amount in $ Sl.No Date Journal entry Debit Credit 1 31-Dec-19 Cash / Bank account    500,000.00           To Advance from Customer ( Ari Company )    500,000.00 ( Being cash received in advance from Ari Company 2 In the year of 2020 there is no transaction, hence journal entry not required 3 31-Dec-21 Ari Company account    700,000.00            To Sales account    700,000.00 ( Being equipments sold ) 31-Dec-21 Cash / Bank account    100,000.00           To Ari company    100,000.00 ( Being remaining $ 100,000 received )

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