Question

illuminators Inc. shipped finished goods inventory, consisting of electric fireplaces, to Waytair Decor Ltd. on consignment at the beginning of the month. Illuminators incurred freight costs to ship the merchandise to Waytair. Waytair paid a local radio station for advertising costs (which Illuminators promised to reimburse). At the end of the month, Waytair had sold many of the fireplaces. Waytair notified Illuminators of the sales, retained a commission, and remitted the cash due to Illuminators. Other information pertaining to the consignment arrangement follows: Number of fireplaces shipped to Waytair Decor Ltd. Cost to illuminators to manufacture each fireplace Cost to Illuminators of freight to ship fireplaces to Waytair Amount paid by Waytair for advertising for fireplaces Number of fireplaces sold Selling price per fireplace Commission charged by Waytair Decor Ltd. to Illuminators| $ $ $ 58 979 4,445 2,029 44 1,631 10% $

1.
Calculate the inventory value of the units unsold in the hands of the
consignee.
2.
Calculate the profit to the consignor for the units sold.
3.
Prepare all journal entries required for the consignment arrangement on
the books of Illuminators Inc.
4.
Prepare all journal entries required for the consignment arrangement on
the books of Waytair Decor Ltd.

Answer 1

28 1 29 Calculate the inventory value of the units unsold in the hands of the 30 consignee. 31 32 58 33 44 34 14 35 Number of Fireplaces sent to congineee Less Sold Ending Inventory Cost Price of one Fireplace Cost Price of 14 Fireplaces (14*979) Add Proportionate expenses incurred by consignor Total value of Ending Inventory in the hands of Consignee 979 36 37 13,706 1,073 (4445/58*14) 14,779 38 39 40 2 41 Calculate the profit to the consignor for the units sold. 42 43 44 45 46 47 48 49 Sale Price (44*1631) Add Ending inventory Less Cost of Goods Consignment (58*979) Expenses incurred by consignor Advertising expense paid by Consignee Commission paid to Consignee(71764*10%) Profit to the consignor 71,764 14,779 -56,782 -4,445 -2,029 -7,176 16,111

51 3 52 Prepare all journal entries required for the consignment arrangement on 53 the books of Illuminators Inc. 54 55 56 Credit In the Books of Illuminators Inc. Account Title & Explanation Consignment Goods sent on Consignment (To record goods sent on consignment) Debit 56,782 57 58 56,782 59 60 61 4,445 62 Consignment Cash (To record cash paid for expenses) 4,445 63 64 65 71,764 66 Waytair Décor Ltd. Consignment (To record sale) 71,764 67 2,029 68 69 70 71 Consignment Waytair Décor Ltd. (To record expenses incurred by consignee) 2,029 72

73 7,176 74 Consignment Waytair Décor Ltd. (To record Commission recorded) 7,176 75 76 77 14,779 78 Consignment Stock Consignment (To record ending Inventory) 14,779 79 80 81 16,111 82 Consignment Profit and Loss (To record profittransferred 16,111 83 84 85 62,559 Cash Waytair Décor Ltd. (To record amount received from consignee) 86 87 88 89 62,559 56,782 90 Goods sent on Consignment Trading (To record transfer to Trading account) 56,782 91 92

93 4 94 Prepare all journal entries required for the consignment arrangement on 95 the books of Waytair Decor Ltd. 96 97 98 Credit In the Books of Waytair Decor Ltd. Account Title & Explanation Illuminators Inc. Cash (To record expenses incurred by consignee) Debit 2,029 99 100 2,029 101 102 103 71,764 104 Cash illuminators Inc. (To record sale of goods) 71,764 105 106 107 2,029 108 Cash illuminators Inc. (To record goods sold on consignment) 2,029 109 110 7,176 111 112 113 Illuminators Inc. Commission (To record commission by consignee) 7,176

62,559 115 1161 illuminators Inc. Cash (To record amount paid to consignor) 62,559 117 118 119