Evergreen company sells lawn and garden products to wholesalers

Evergreen Company Sells Lawn And Garden Products To Wholesalers.

P7-10 Miscellaneous receivable transactions

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 10,000 and accepted a 10%, 7-month note. 10% is an appropriate rate for this type of note.

Mar. 31 Sold merchandise to Maddox Co. and accepted a noninterest-bearing note with a discount rate of 10%. The 8,000 payment is due on March 31,2012.

Apr. 3 Sold merchandise to Carr Co. for 7,000 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.

17 A customer returned merchandise costing 3,200. Evergreen reduced the customer’s receivable balance by 5,000, the sales price of the merchandise. Sales returns are recorded by the company as they occur.

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 the note amount plus interest to the bank.

Required:

1. Prepare the necessary journal entries for Evergreen for each of the above dates. The transaction involving the sale of merchandise, ignore the entry for the cost of goods sold (round all calculations to the nearest dollars).

2. Prepare any necessary adjusting entries at December 31, 2011. Adjusting entries are only recorded at year-end (round all calculations to the nearest dollar).

3. Prepare a schedule showing the effect of the journal entries in requirements 1 and 2 on 2011 income before taxes.

P 7-14 Bank Reconciliation and adjusting entries

El Gato Painting Company maintains a checking account at American Bank. Bank statements are prepared at the end of each month. The November 30, 2011, reconciliation of the bank balance is as follows:

Balance per bank, November 30

Add: Deposits outstanding 3,231

Less: Checks outstanding 1,200

#363 123

#365 201

#380 56

#381 86

#382 340

Adjusted balance per bank, November 30 (806)

3,625

The company’s general ledger checking account showed the following for December:

Balance, December 1 3,625

Receipts 42,650

Disbursements (41,853)

Balance, December 31 4,422

The December bank statement contained the following information:

Balance, December 1 3,231

Deposits 43,000

Checks processed (41,918)

Service charges (22)

NSF checks (440)

Balance, December 31 3,851

The checks that were processed by the bank in December include all of the outstanding checks at the end of November except for check #365. In addition, there are some December checks that had not been processed by the bank by the end of the month. Also, you discover that check #411 for $320.00 was correctly recorded by the bank but was incorrectly recorded on the books as a $230 disbursement for advertising expense. Included in the bank’s deposit is a $1,300 deposit incorrectly credited to the company’s account. The deposit should have been posted to the credit of the Los Gatos Company. The NSF checks have no ben redeposited and the company will seek payment from the customers involved.

Required:

1. Prepare a bank reconciliation for the El Gato checking account at December 31, 2011.

2. Prepare any necessary adjusting journal entries indicated.