VCAA exam 2007 Q. 2.5 ...help

[shadezofemerald]

 the vcaa website shows there are two ways to do this, i wanted to do the longer one but don't get how the debtor's control is $6500.  I asked my teacher and she told me it shouldn't be $6500 and it wasn't very clear.  So can someone explain why it's $6500 please. 

[Scarlett]

Alright I'll give explaining a go:

The question says that the total selling price of 10 treadmills is $33 000, including $3 000 GST. Therefore, each treadmill has a selling price of $3 000, plus $300 GST. If five treadmills have been delivered, the total revenue earned would be $3 000 x 5 treadmills = $15 000, which means that our Sales Revenue account has to be credited with $15 000. It also means that the GST charged upon delivery should be 10% of $15 000 = $1 500.

Still with me? Alright.

Now we know that $10 000 has already been received as Prepaid Sales Revenue. We can make a Balance Day Adjustment to record this revenue as being earned.

DR Prepaid Sales Revenue   $10 000
CR         Sales                            $10 000

As I said before, our Sales Revenue account has to be credited in total $15 000. It is therefore clear an additional $5 000 must be charged to Debtors.

DR Debtors Control             $5 000
CR         Sales                            $5 000

Now let's look at the GST. The amount of GST charged is $1 500. Therefore, this needs to be debited to Debtors Control.

DR Debtors Control             $1 500
CR         GST Clearing                  $1 500

So now we can put it all together, and we get (not taking into account subsidiary ledger entries or the Cost of Sales/Stock Control entry):

DR Debtors Control            $6 500
DR Prepaid Sales Revenue $10 000
CR         Sales                           $15 000
CR         GST Clearing                   $1 500

The $6 500 comes from the debit entry of the $5 000 earned as sales and the debit entry of $1 500 for GST. I hope that makes sense.

[shadezofemerald]

yep that makes sense! thank-you so much for taking the time to explain it so throughly!!