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Determine what rate of interest is implicit in the agreement

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Reference no: EM132636499

Question - On 1 July 2019, Bronzed Aussie Ltd sells a caravan to Cairns Ltd. The caravan has a normal sales price of $16846. Rather than selling the item for its normal sales price, Bronzed Aussie Ltd sells the caravan for four annual payments of $5200 per year, the first payment to be made on 30 June 2020. The difference between the gross receipts and the current sales price represents interest revenue to be earned by Bronzed Aussie Ltd over the period of the agreement.

REQUIRED -

1. Determine what rate of interest is implicit in the agreement.

2. Provide the journal entries for Bronzed Aussie Ltd for the years ending 30 June 2020 and 2021, using

a. the net-interest method and

b. the gross method.

Reference no: EM132636499

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