Question

The following are transactions between Larkspur Corp., the consignor, and Crane Stores Ltd., the consignee, for the month of June 2020. Larkspur uses a perpetual inventory system and has a separate perpetual record for inventory sent out on consignment. At the end of each month, sales are reported by Crane to Larkspur and a net payment is made. The agreement stipulates that Crane is to receive a 20% (of sales) commission and a 7% (of sales) rebate to offset its advertising expenses.

June	1		Larkspur Corp. ships merchandise costing $475,000 on consignment to Crane Stores Ltd.
June	5		Larkspur pays the freight of $4,500 for the above shipment of June 1.
June	30		Summary entry for the month of June: Crane sells half of the merchandise for $680,000 cash.
June	30		Crane notifies Larkspur that 50% of the merchandise has been sold for $680,000 and remits a cheque for the amount due under the consignment agreement. Larkspur records the receipt of the cheque from Crane.

1)

Prepare the journal entries necessary on the books of Larkspur Corp.

Date	Account Titles and Explanation	Debit	Credit
a)
b)
c)
	(to record consignment sales)
d)

(to record cost of goods sold)

Answer 1

Date	Particulars	Debit	Credit	Remarks
a) June 1	Consignment A/c	4,75,000
	To Inventory sent on consignment		4,75,000
	(Being stock sent on consignment)
b) June 5	Consignment A/c	4,500
	To Cash/bank		4,500
	(Being Freight Expenses Incurred on consignment)
c) June 30	Commission on consignment Sales	1,36,000
	(6,80,000*20%)
	Rebate on consignment Sales	47,600
	(6,80,000*7%)
	Crane Stores Ltd. A/c	4,96,400
	To Consignment A/c		6,80,000
	(To Record Consignment Sales)
d) June 30	Bank A/c	4,96,400
	To Crane Stores Ltd. A/c		4,96,400
	(Being Cheque deposited in bank)
e)	Profit on consignment sales	2,58,900		This entry is passed to record profit and is passed at year end
	(680000-136000-47600-475000/2)
	To Consignment A/c		2,58,900
	(Being consignment profit recorded)