Question

4 Problem 7-10 Miscellaneous receivable transactions [LO7-3,7-4, 7-7, 7-8] 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 recelvables occurred Feb. 28 Sold merchandise to Lennox, Inc. for $30,000 and accepted a 8%, 7-month note Mar 31 Sold merchandise to Maddox Co. and accepted a noninterest-bearing note with a Apr. 3 Sold merchandise to Carr Co. for $20,000 with terms 2/10, n/30. Evergreen uses 4 points 8 is an appropriate rate for this type of note. discount rate of 8%. The $22,000 payment is due on March 31, 2019 the gross method to account for cash discounts eBook 11 Collected the entire amount due from Carr Co 17 A customer returned merchandise costing $4,300. Evergreen reduced the customer's receivable balance by $6,100, the sales price of the merchandise Sales returns are recorded by the company as they occur Reference 30 Transferred receivables of $61,000 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 solcd. 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. Complete this question by entering your answers in the tabs below Required Required Required 2 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.) Show less View transaction list Journal entry worksheet <|1|2 3 4 5 6 7 8 9 10 Sold merchandise to Lennox, Inc. for $30,000 and accepted a 8%, 7-month note. 896 is an appropriate rate for this type of note Note: Enter debits before credits Debit Credit General Journal February 28, 2018 Record entry View general journal Clear entry Required 1 Required 2

Answer 1

Answer to Question 1:

Question 1 Date Account Title Debit Credit 28-Feb Notes Receivable $ 30,000 Sales Revenue $ 30,000 31-Mar Notes Receivable $ 22,000 Discount (22,000*8%) Sales Revenue $ 1,760 $ 20,240 03-Apr Accounts Receivable 20,000 Sales Revenue $ 20,000 Cash 11-Apr (20000*98%) $ 19,600 Sales discount (20,000*2%) Accounts Receivable 400 $ 20,000

Answer to Question 1:

17-Apr Sales Retunn $ 6,100 Accounts Receivable $6,100 $4,300 Inventory Cost of goods sold $4,300 Cash 30-Apr (61000*9996) 60,390 Loss on sale of receivables (61000*196) Accounts Receivable 610 61,000 Interest receivable 30-Jun (30,000*8%*4/12) 800 Interest revenue $800 (To accrue interest on notes receivable for four months)

Answer to Question 1:

Question 1 Date Account Title Debit Credit 30-Jun Cash $ 30,6195 Loss on sale of receivable Interest receivable (see above adjusting entry) Note receivable (face amount) $185 (30,000800 30,615) $ 800 $ 30,000 (To record discounting of note receivable)

Answer to Question 1:

Calculation of proceeds received (Cash) 30,000 Face amount 1,400 Interest to maturity-30,000*8%*7/12 31,400 Maturity value (31,4001,400) $ 785 Discount-31,400*10%*3/12 30,615 Cash proceeds (31,400 785) Determination of discount period 1st March to 30th June Days held by endorser Discount Period (7months - 4 months) 4 months 4 months 3 months 30-Sep No entry in our books (Because we have already discounted the note hence we have received our money, so there will be no entry in our books of accounts if Lennox gives the money to the bank)

Answer to Question 2 and 3:

Question 2 31-Dec Discount $ 1,320 Interest Revenue (22,000*890*9/12) $1,320 To accrue interest of 9 months on the Maddox Co. Note Receivable) Question 3 Date Income Increase (Decrease) 28-Feb $ 31-Mar $ 03-Apr $ 11-Apr $ 17-Apr $ 30,000 (Revenue will increase our income) 20,240 (Our income will increase net of discount) 20,000 (Revenue wil increase our income) (400) Sales discount will decrease our income as it is an expense) (6,100) (Sales return will decrease our income) (Cost of goods sold will increase our income, as it is 17-Apr $ 30-Apr $ 30-Jun $ 30-Jun $ 31-Dec $ Total effect $ 4,300 now part of inventory and no more expense) (610) (Loss on notes receivable will decrease our income) 800 (Interest revenue will increase our income) (185) (Loss on sale of notes receivable will decrease our income) 1,320 (Interest revenue will increase our income) 69,365