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Determine what would the journal entries be

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Churchill HVAC Inc. buys and sells heating and air-conditioning units that are used in homes across Scarborough. The company follows IFRS. Unit selling prices range from $2,250 to $15,000.

  • Churchill sells a heating system to Drake on November 15, 2019. The selling price for the heating system is usually $13,500.
  • Churchill will also install the heating system. The estimated fair value of the installation is $1,500.
  • Churchill sold the heating system with installation to Drake for $14,250. The heating system cost Churchill $6,000.
  • Drake is obligated to pay Churchill $3,000 upon delivery of the heating system and the balance on December 15th.
  • Churchill delivers the equipment on November 24th, 2019, and completes the installation on December 2nd, 2019.

On December 15th Drake informs Churchill that they will not be able to pay their account that is due. The two parties enter into an agreement that the account will be converted into a non-interest bearing promissory note to be repaid in one year from now. The maturity value of the note is $12,375. Drake is a bit of credit risk and typically borrows funds at a rate of 10%. Churchill is much more credit worthy and has various loans at 8% interest. The company's year end is December 31st.

Question 1: Prepare the journal entries for 2019 and 2020. What would the journal entries be?

Reference no: EM132564491

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