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 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 $16,560, and accepted a noninterest-bearing note for which $18,000 payment is due on March 31, 2022.
Apr.		3		Sold merchandise to Carr Co. for $12,000 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 $4,100. Evergreen reduced the customer’s receivable balance by $5,900, the sales price of the merchandise. Sales returns are recorded by the company as they occur.
		30		Transferred receivables of $59,000 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 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.
  

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. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field. Do not round intermediate calculations. Round your final answers to the nearest whole dollar.)

Prepare any necessary adjusting entries at December 31, 2021. Adjusting entries are only recorded at year-end. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.)

No	Date	General Journal	Debit	Credit
1	December 31, 2021	Discount on notes receivable
		Interest revenue

Prepare a schedule showing the effect of the journal entries on 2021 income before taxes. (Decreases should be indicated with a minus sign. Do not round intermediate calculations. Round your final answers to the nearest whole dollar.

Income Date increase (decrease) February 28 $24,000 March 31 April 3 12,000 April 11 April 17 April 17 4,100 April 30 June 30 June 30 December 31 Total effect $40,1

Answer 1

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Part 1
Feb 28
Note receivable		$   24,000
	Sales revenue		$   24,000
Mar 31
Note receivable (face amount)		$   18,000
	Discount		$     1,440
	Sales revenue		$   16,560
Apr 3
Accounts receivable		$   12,000
	Sales revenue		$   12,000
Apr 11
Cash (98% x $12,000)		$   11,760
Sales discounts (2% x $12,000)		$         240
	Accounts receivable		$   12,000
Apr 17
Sales returns		$     5,900
	Accounts receivable		$     5,900
Inventory		$     4,100
	Cost of goods sold		$     4,100
Apr 30
Cash (99% x $59,000)		$   58,410
Loss on sale of receivables (1% x $59,000)		$         590
	Accounts receivable		$   59,000
To accrue interest on note receivable for four months.
Jun 30
Interest receivable		$         640
	Interest revenue ($24,000 x 8% x 4/12)		$         640
To record discounting of note receivable.
Jun 30
Cash (proceeds determined below)	$                                                                                   24,492
Loss on sale of note receivable (to balance)	$                                                                                         148
	Interest receivable (from adjusting entry)		$         640
	Note receivable (face amount)		$   24,000
Face amount		$   24,000
Interest to maturity ($24,000 x 8% x 7/12)		$     1,120
Maturity value		$   25,120
Discount ($25,120 x 10% x 3/12)		$       (628)
Cash proceeds		$   24,492
August 31, 2011 — NO ENTRY REQUIRED
Requirement 2
To accrue nine months' interest on the Maddox Co. note receivable.
Discount		$     1,080
	Interest revenue ($1,440*9/12)		$     1,080
Requirement 3
	Income
Date	increase (decrease)
28-Feb	$                                                                                   24,000
31-Mar	$                                                                                   16,560
3-Apr	$                                                                                   12,000
11-Apr	$                                                                                      (240)
17-Apr	$                                                                                   (5,900)
17-Apr	$                                                                                     4,100
30-Apr	$                                                                                      (590)
30-Jun	$                                                                                         640
30-Jun	$                                                                                      (148)
31-Dec	$                                                                                     1,080
Total effect	$                                                                                   51,502