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 $24,000 and accepted a 10%, 7-month note. 10% is an appropriate rate for this type of note.
Mar.		31		Sold merchandise to Maddox Co. that had a fair value of $18,900, and accepted a noninterest-bearing note for which $21,000 payment is due on March 31, 2022.
Apr.		3		Sold merchandise to Carr Co. for $16,000 with terms 2/10, 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 $5,000. Evergreen reduced the customer’s receivable balance by $6,800, the sales price of the merchandise. Sales returns are recorded by the company as they occur.
		30		Transferred receivables of $68,000 to a factor without recourse. The factor charged Evergreen a 1% 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 12%. 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

1)
Date	Particulars	Debity ($)	Credit ($)
Feb-28	Notes receivable	24000
	Sales revenue		24000
Mar-31	Notes receivable	21000
	Discount (21000*10%)		2100
	Sales revenue		18900
Apr-03	Account receivable	16000
	Sales revenue		16000
Apr-11	Cash	15680
	Sales discount	320
	Account receivable		16000
Apr-17	(1) sales return	6800
	Account receivable		6800
	(2) Inventory	5000
	Cost of good sold		5000
Apr-30	Cash (99%×68000)	67320
	Loss on sales of receivable(1%×68000)	680
	Account receivable		68000
Jun-30	Interest receivable(24000×10%×4/12)	800
	Interest revenue		800
Jun-30	Cash (WN below)	24638
	Loss on sale of notes receivable(balance)	162
	Interest receivable		800
	Notes receivable		24000
Aug-31	No entry
Face amount=24000
Add interest to maturity(24000×10%×7/12)=$1400
Maturity value=$25400
Less discount(25400×12%×3/12)=$762
Cash proceed=$24638
2)
Date	Particulars	Debit ($)	Credit ($)
Dec-31	Discount	1575
	Interest revenue (21000*10%*9/12)		1575
3)
Date	Income increase /Decrease
Feb-28	24000
Mar-31	18900
Apr-03	16000
Apr-11	-320
Apr-17	-6800
Apr-17	5000
Apr-30	-680
Jun-30	800
Jun-30	-162
Dec-31	1575
Total effect	58313