Question

Evergreen Company sells lawn and garden products to wholesalers. The company's fiscal year-end is December 31. During 2021, the following transactions related to receivables occurred:

Feb.		28		Sold merchandise to Lennox, Inc., for $12,000 and accepted a 8%, 7-month note. 8% is an appropriate rate for this type of note.
Mar.		31		Sold merchandise to Maddox Co. that had a fair value of $7,452, and accepted a noninterest-bearing note for which $8,100 payment is due on March 31, 2022.
Apr.		3		Sold merchandise to Carr Co. for $7,100 with terms 3/10, n/30. Evergreen uses the gross method to account for cash discounts.
		11		Collected the entire amount due from Carr Co.
		17		A customer returned merchandise costing $3,300. Evergreen reduced the customer’s receivable balance by $5,100, the sales price of the merchandise. Sales returns are recorded by the company as they occur.
		30		Transferred receivables of $51,000 to a factor without recourse. The factor charged Evergreen a 2% finance charge on the receivables transferred. The sale criteria are met.
June		30		Discounted the Lennox, Inc., note at the bank. The bank’s discount rate is 10%. The note was discounted without recourse.
Sep.		30		Lennox, Inc., paid the note amount plus interest to the bank.

Required:
1. Prepare the necessary journal entries for Evergreen for each of the above dates. For transactions involving the sale of merchandise, ignore the entry for the cost of goods sold.
2. Prepare any necessary adjusting entries at December 31, 2021. Adjusting entries are only recorded at year-end.
3. Prepare a schedule showing the effect of the journal entries on 2021 income before taxes.

• Sold merchandise to Lennox, Inc. for $12,000 and accepted a 8%, 7-month note. 8% is an appropriate rate for this type of note.
• 2
  Sold merchandise to Maddox Co. and accepted a noninterest-bearing note with a discount rate of 8%. The $8,100 payment is due on March 31, 2021.
• 3
  Sold merchandise to Carr Co. for $7,100 with terms 3/10, n/30. Evergreen uses the gross method to account for cash discounts.
• 4
  Collected the entire amount due from Carr Co.
• 5
  Evergreen reduced the customer’s receivable balance by $5,100, the sales price of the merchandise. Sales returns are recorded by the company as they occur.
• 6
  A customer returned merchandise costing $3,300.
• 7
  Transferred receivables of $51,000 to a factor without recourse. The factor charged Evergreen a 2% finance charge on the receivables transferred. The sale criteria are met.
• 8
  Record the accrual of four months of interest on the note receivable issued on February 28.
• 9
  Discounted the Lennox, Inc., note at the bank. The bank’s discount rate is 10%. The note was discounted without recourse.
• 10
  Lennox, Inc., paid the note amount plus interest to the bank.

Answer 1

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Part a
		Debit	Credit
February 28, 2021
Note receivable		$              12,000
	Sales revenue		$                           12,000
March 31, 2021
Note receivable (face amount)	$                 8,100
	Discount on notes receivable		$                                 648	8.00%
	Sales revenue		$                             7,452
April 3, 2021
Accounts receivable		$                 7,100
	Sales revenue		$                             7,100
April 11, 2021
Cash		$                 6,887
Sales discounts (3% x $7,100)	$                    213
	Accounts receivable		$                             7,100
April 17, 2021
Sales returns		$                 5,100
	Accounts receivable		$                             5,100
Inventory		$                 3,300
	Cost of goods sold		$                             3,300
April 30, 2021
Cash		$              49,980
Loss on sale of accounts receivable (2% x $51,000)	$                 1,020
	Accounts receivable		$                           51,000
June 30, 2021
Interest receivable		$                    320
	Interest revenue ($12,000 x 8% x 4/12)		$                                 320
June 30, 2021
Cash		$              12,246
Loss on sale of note receivable (to balance)	$                       74
	Interest receivable (from adjusting entry)		$                                 320
	Note receivable (face amount)		$                           12,000
	Face amount	$              12,000
	Interest to maturity ($12,000 x 8% x 7/12)	$                    560
	Maturity value	$              12,560
	Discount ($12,560 x 10% x 3/12)	$                   -314
	Cash proceeds	$              12,246
Sep 30, 2021	No Entry
Dec 31, 2021
Discount on Note Receivable	$                    486
	Interest Revenue		$                                 486
	($8,100*8%*9/12)
	Income
Date	increase (decrease)
Feb 28	$                                                                                        12,000
Mar 31	$                                                                                          7,452
Apr 3	$                                                                                          7,100
Apr 11	$                                                                                            -213
Apr 17	$                                                                                        -5,100
Apr 17	$                                                                                          3,300
Apr 30	$                          ekkarill92 Next > < Previous Related Solutions Evergreen Company sells lawn and garden products to wholesalers. The company's fiscal year-end is December 31....  Evergreen Company sells lawn and garden products to wholesalers. The company's fiscal year-end is December 31. During 2021, the following transactions related to receivables occurred: Feb. 28 Sold merchandise to Lennox, Inc., for $12, 000 and accepted a 8%, 7-month note. 8% is an appropriate rate for this type of note. Mar. 31 Sold merchandise to Maddox Co. that had a fair value of $7,452, and accepted a noninterest-bearing note for which $8, 100 payment is due on March 31, 2022. Apr. 3... Evergreen Company sells lawn and garden products to wholesalers. The company's fiscal year-end is December 31.... Evergreen Company sells lawn and garden products to wholesalers. The company's fiscal year-end is December 31. 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