3)3. Prepare a schedule showing the effect of the journal entries in requirement

Question

3)3. Prepare a schedule showing the effect of the journal entries in requirements 1 and 2 on 2006 income before taxes



Evergreen Company sell lawn and gardenproducts to wholesalers. The company's fiscal year-end is December31. During 2006, the following transactions related to receivablesoccurred:

Feb. 28 Sold merchandise to Lennox, Inc. for $10,000 andaccepted a 10%, 7 month note. 10% is an appropriate rate for thistype of note.

Mar. 31 Sold merchandise to Maddox Co. and accepted anoninterest-bearing note with a discount rate of 10%. The $8,000payment is due on March 31,2007.

Apr. 3 Sold merchandise to Carr Co. for $7,000 withterms 2/10, n/30. Evergreen uses the gross method to account forcash discounts.

Apr. 11 Collected the entire amount due from CarrCo.

Apr. 17 A customer returned merchandise costing $3,200.Evergreen reduced the customer's receivable balance by $5,000, thesales price of the merchandise. Sales returns are recorded by thecompany as they occur.

Apr. 30 Transferred receivables of $50,000 to a factorwithout recourse. The factor charged Evergreen a 1% finance chargeon 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 withoutrecourse.

Aug. 31 Lennox, Inc,. paid the note amount plus interestto the bank.

Explanation / Answer

Notes Receivable $10,000

Sales Revenue $10,000

To record merchandise sold on account to Lennnox, Inc.

Notes Receivable $8,000

Sales Revenue $8,000

To record merchandise sold on account to Maddox Co

Notes Receivable $7,000

Sales Revenue $7,000

To record merchandise sold on account to Carr Co

           Cash     $6,860

04/17/11 04/30/11

Sales Discount $140

Notes Receivable        $7,000

To record collection from Carr Co.

Sales returns $5,000

Notes Receivable $5,000

To record returned merchandise

Cash $49,500

Finance Charge $500

Notes Receivables $50,000

To account for transferred receivables 06/30/11

Cash $10,010 Notes Receivable $10,000

Discount $10

To record Lennox receivable paid within discount period. 08/31/11

Cash $11,000

Interest $1,000

Notes Receivable $10,000

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