Question

In: Accounting

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 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.


Solutions

Expert Solution

List of the journals
Feb-28 Lenox Inc 12000 Dr
To sales -12000 Cr
Being the entry for sale of merchandise
Mar-31 Madox co 7452 Dr
To sales -7452 Cr
Being the entry for sale of merchandise
Apr-03 Carr & co 7100 Dr
To sales -7100 Cr
Being the entry for sale of merchandise
Apr-11 Bank 7100 Dr
To Carr &Co -7100 Cr
Entry for realisation of the payment from customer
Apr-17 Sales account 5100 Dr
To customer account -5100 Cr
Entry for return of the merchandise
Apr-30 Bank Account 51000 Dr
To Book debts -51000 Cr
Being entry for factoring /Discounting of the book debts
Apr-30 Bank charges account 1020 Dr
To Bank account -1020 Cr
Being entry for the finance charges on factoring
Jun-30 Discount charges 1200 Dr
Bank 10800 Dr
To Lenox inc -12000 Cr
Being entry for discounting of the receivables @ 10% discounting charge

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