Question

Hendrix Inc., an equipment dealer, sells equipment on January 1, 2018, to Jimi Company for $200,000. It agrees to repurchase this equipment from Jimi Company on December 31, 2019, for a price of $233,280. At 1/1/18, Hendrix should record (LO 3)

(a)Sales revenue of $200,000.
(b)Sales revenue of $200,000 and a liability of $33,280.
(c)Sales revenue of $200,000 and interest expense of $33,280.
(d)A liability of $200,000.

Answer 1

Answer:

The correct option is D

Explanation:

On January 1, 2018, the dealer sold the equipment of $200,000, at this point he made a sale but later on December 31, 2019, the dealer agrees to repurchase the equipment at the price of $233,280. So, it will be a financing agreement as it is that agreement in which the asset is bought at higher rate on a future date.

Therefore, the dealer on January 1, 2018, should record the liability of $200,000 in the books.