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(a)

Account Titles and Explanation

Debit

Credit

(To record sales)

(To record cost of goods sold)

(b)

Account Titles and Explanation

Debit

Credit

(To record sales)

(To record cost of goods sold)

blem 18-5 (Part Level Submission)

Flounder Ranch & Culver is a distributor of ranch and farm equipment. Its products range from small tools, power equipment for trench-digging and fencing, grain dryers, and barn winches. Most products are sold direct via its company catalog and Internet site. However, given some of its specialty products, select farm implement stores carry Flounder’s products. Pricing and cost information on three of Flounder’s most popular products are as follows.
Item Standalone
Selling Price (Cost) Mini-trencher $ 4,000 ($2,000 ) Power fence hole auger 1,300 (800 ) Grain/hay dryer 13,600 (10,800 )
Respond to the requirements related to the following independent revenue arrangements for Flounder Ranch & Culver.

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(a)

Your answer is correct. On January 1, 2017, Flounder sells 30 augers to Mills Farm & Fleet for $39,000. Mills signs a 6-month note at an annual interest rate of 12%. Flounder allows Mills to return any auger that it cannot use within 50 days and receive a full refund. Based on prior experience, Flounder estimates that 5% of units sold to customers like Mills will be returned (using the most likely outcome approach). Flounder’s costs to recover the products will be immaterial, and the returned augers are expected to be resold at a profit. Prepare the journal entry for Flounder on January 1, 2017. (Credit account titles are automatically indented when the amount is entered. Do not indent manually. If no entry is required, select "No entry" for the account titles and enter 0 for the amounts.)

Account Titles and Explanation

Debit

Credit

Notes Receivable

39000

Sales Revenue

39000

(To record sales)

Cost of Goods Sold

24000

Inventory

24000

(To record cost of goods sold)

(b)

On August 10, 2017, Flounder sells 16 mini-trenchers to a farm co-op in western Minnesota. Flounder provides a 4% volume discount on the mini-trenchers if the co-op has a 15% increase in purchases from Flounder compared to the prior year. Given the slowdown in the farm economy, sales to the co-op have been flat, and it is highly uncertain that the benchmark will be met. Prepare the journal entry for Flounder on August 10, 2017. (Credit account titles are automatically indented when the amount is entered. Do not indent manually. If no entry is required, select "No entry" for the account titles and enter 0 for the amounts. Round intermediate calculations to 6 decimal places, e.g. 1.246576 and final answers to 0 decimal places, e.g. 5,125.)

Account Titles and Explanation

Debit

Credit

(To record sales)

(To record cost of goods sold)

Explanation / Answer

No. Date Account Titles and Explanation Debit Credit Entry for (a) should be like this, if your answer is correct then ignore it. 2017 (a) January 1 Notes Receivable (Mills) 39,000 Refund Liability (5% X $39,000) 1,950 Sales Revenue 37,050 Cost of Goods Sold 22,800 Estimated Inventory Returns    (30* X $800 X 5%) 1,200 Inventory (30 X $800) 24,000 *($39,000 ÷ $1,300) (b) August 10 Cash (16 X $4,000*) 64,000 Sales Revenue 64,000 Cost of Goods Sold 32,000 Inventory (16 X $2,000) 32,000 * Note: There is no adjustment for the volume discount, because it is not probable that the customer will reach the benchmark.

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