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 $18,000 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 $11,960, and accepted a noninterest-bearing note for which $13,000 payment is due on March 31, 2022.
Apr.		3		Sold merchandise to Carr Co. for $11,000 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 $4,900. Evergreen reduced the customer’s receivable balance by $6,700, the sales price of the merchandise. Sales returns are recorded by the company as they occur.
		30		Transferred receivables of $67,000 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.

Answer 1

date	particulars	debit $	credit $
feb 28	note receivable	18000
	sales revenue		18000
mar 31	note receivable	13000
	discount		1040
	sales revenue		11960
apr 3	account receivable	11000
	sales revenue		11000

apr 11	cash	10670
	sales discount	330
	account receivable		11000
apr 17	sales retrurn	6700
	accounts receivable		6700
	inventory	4900
	cost of good sold		4900

apr 30	cash	65660
	loss on sale receivables	1340
	account receivables		67000
june 30	interest receivable(18000*8%*4/12)	480
	interest revenue		480
	to accrue interest on note receivable for four months)
june 30	cash	18369
	loss on sale of note receivable	111
	interest receivable		480
	note receivable		18000

2)to accrue 9 months interest on maddox co.note receivable

discount (1040*9/12) $780

interest revenue $780

3)

date	income increase/(decrease)
28-feb	$18000
31-mar	$11960
3-apr	$12000
11-apr	($330)
17-apr	($6700)
17-apr	$4900
30-apr	($1340)
30-jun	$480
30-jun	($111)
31dec	$780
total effect	$39639