Question

Evergreen Company sells lawn and garden products to wholesalers. The company's fiscal year-end is December 31. During 2018, the following transactions related to receivables occurred:

Feb.		28		Sold merchandise to Lennox, Inc. for $40,000 and accepted a 6%, 7-month note. 6% is an appropriate rate for this type of note.
Mar.		31		Sold merchandise to Maddox Co. and accepted a noninterest-bearing note with a discount rate of 6%. The $30,000 payment is due on March 31, 2019.
Apr.		3		Sold merchandise to Carr Co. for $15,000 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 $4,400. Evergreen reduced the customer’s receivable balance by $6,200, the sales price of the merchandise. Sales returns are recorded by the company as they occur.
		30		Transferred receivables of $62,000 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 8%. 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, 2018. Adjusting entries are only recorded at year-end.
3. Prepare a schedule showing the effect of the journal entries on 2018 income before taxes.

Answer 1

Journal Entry in Books of Evergreen
Date	Account	Debit	Credit
26-Feb	6%, 7 Month Note Receivable	$40,000.00
	Sales		$40,000.00
	( Being Merchandised sold agst Note)
31-Mar	12 Month Note Receivable	$30,000.00
	Sales		$20,240.00
	Discount		$1,800.00
	( Being Merchandised sold agst Note)
03-Apr	Account Receivable	$15,000.00
	Sales		$15,000.00
	( Being Merchandised sold to Carr Co on Credit)
11-Apr	Cash	$14,700.00
	Sales Discount	$300.00
	Account Receivable		$15,000.00
	( being Payment received and cash Discount issued)
17-Apr	Sales Return	$6,200.00
	Account Receivable		$6,200.00
	( Being Merchandised return)
17-Apr	inventory	$4,400.00
	Cost of Goods Sold		$4,400.00
	( Being returned Merchandised trff in Inventory)
30-Apr	Cash (9%*$61000)	$61,380.00
	Loss on sale of Receivable (1%*$62000)	$620.00
	Account Receivable		$62,000.00
	( Account Receivable Factored on Loss)
30-Jun	Interets Receivable	$800.00
	Interest Revenue ( 40000*6%*4/12)		$800.00
	( being Interest booked for Lennox Note)
30-Jun	Cash	$38,088.00
	Loss on sale of Note Receivable	$2,712.00
	Interest Receivable		$800.00
	Note Recivable		$40,000.00
	(Being Lennox Note discount from Bank)
30-Sep	No Entry Required
Adjusting Entry at December
Date	Account	Debit	Credit
31-Dec	Discount	$1,350.00
	Interest Revenue		$1,350.00
	(30000*6%*9/12)
Schedule Showing the effect of Journal Entry
Date	Income Increase ( Decrease)
Feb-28	$40,000.00
31-Mar	$20,240.00
03-Apr	$15,000.00
11-Apr	-$300.00
17-Apr	-$6,200.00
17-Apr	$4,400.00
30-Apr	-$620.00
30-Jun	$800.00
30-Jun	-$2,712.00
31-Dec	$1,350.00
Total	$71,958.00