Evergreen Company sells lawn and garden products to wholesalers. The company's fiscal year-end is December 31. During 2011, the following transactions related to receivables occurred:
Feb. 28: Sold merchandise to Lennox, Inc. for $9,900 and accepted a 10%, 7-month note. 10% is an appropriate rate for this type of note. End date Sept 11
Mar. 31: Sold merchandise to Maddox Co. and accepted a non-interest-bearing note with a discount rate of 10%. The $8,800 payment is due on March 31, 2012.
Apr. 3: Sold merchandise to Carr Co. for 7,800 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. Note amt 6800 A/R collections 6800
17: A customer returned merchandise costing $3200. Evergreen reduced the customer's receivable balance by $5000, the sales price of the merchandise. Sales returns are recorded by the company as they occur.
Apr. 30: Transferred receivables of $50,000 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 12%. The note was discounted without recourse.
Aug 31: Lennox, Inc., paid note amount plus to the bank.
Required:
Review the financial information pertaining to Evergreen Company and prepare the following:
- Prepare the necessary journal entries for Evergreen for each of the dates listed in the problem. For transactions involving the sale of merchandise, ignore the entry for the cost of goods sold (round all calculations to the nearest dollar).
- Prepare any necessary adjusting entries at December 31, 2011. Adjusting entries are only recorded at year-end (round all calculations to the nearest dollar).
- Prepare a schedule showing the effect of the journal entries in requirements 1 and 2 on 2011 income before taxes.