Question

In: Accounting

On August 1, 2020, Kazazis Company sold inventory to Magic Company and received Magic’s 9-month, noninterest-bearing...

On August 1, 2020, Kazazis Company sold inventory to Magic Company and received Magic’s 9-month, noninterest-bearing $100,000 note due April 30, 2021. The cash selling price of the inventory was $94,000. The cost of the inventory was $60,000. Kazazis records adjusting entries annually at December 31.

a. Record the August 1, 2020, journal entries (including COGS) for Kazazis.

b. If Kazazis recorded the note as an interest-bearing note on August 1, 2020, (i.e., did not record a discount on the note), how would the financial statements be misstated (overstated/understated and $ amount)?. (Hint: Record the entry without the discount and compare to your answer in part a.)ASSETSLIABILITIESSE2020 NET INCOME$$$$OverstatedOverstatedOverstatedOverstatedUnderstatedUnderstatedUnderstatedUnderstated

c. Record the December 31, 2020, adjusting entry for Kazazis.

d. If Kazazis’ 2020 net income without including the Aug. 1 sale or December 31 adjusting entry was $200,000, what is the correct 2020 net income? Ignore taxes.

e. What amounts related to the note will Kazazis report on its 2020 balance sheet?

f. Record the April 30, 2021, journal entry/entries for Kazazis. (You may choose to record 1 entry as we did in the example in class or 2 entries as required by Connect.)

Solutions

Expert Solution

In the Books of Kazazis
a)                                      Journal Entry
Date Particulars Dr.Amt Cr.Amt
01.08.20 Bill receivable 94000
interest receivable 6000
To Sales 100000
(Being goods sold)
01.08.20 Profit and loss 60000
To Purchases 60000
In the Books of Kazazis
b)                                      Journal Entry
Date Particulars Dr.Amt Cr.Amt
01.08.20 Bill receivable 94000
interest receivable 6000
To Sales 94000
To interest 6000
(Being goods sold)
01.08.20 Profit and loss 60000
To Purchases 60000
(Being cogs trf.to pl)
Income is understated as sales is under stated
Bill is understated
In the Books of Kazazis
c)                                      Journal Entry
Date Particulars Dr.Amt Cr.Amt
31.12.20 Intereset receivable 3333.33
To interest 3333.33
d) Net income for the year ended 31.12.2020
297333.3 (200000+3333.33+94000)
e) Bill will be recorded at 94000
In the Books of Kazazis
f)                                      Journal Entry
Date Particulars Dr.Amt Cr.Amt
30.04.21 Bank 100000
To Bill Receivables 94000
To Interest receivable 6000.00

ekkarill92 answered 2 years ago
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