Evergreen Company sells lawn and garden products to wholesalers. The company's fiscal year-end is December 31. During 2021, the following transactions related to receivables occurred: Feb. 28 Sold merchandise to Lennox, Inc., for $20,000 and accepted a 6%, 7-month note. 6% is an appropriate rate for this type of note. Mar. 31 Sold merchandise to Maddox Co. that had a fair value of $15,040, and accepted a noninterest-bearing note for which $16,000 payment is due on March 31, 2022. Apr. 3 Sold merchandise to Carr Co. for $14,000 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 $4,800. Evergreen reduced the customer’s receivable balance by $6,600, the sales price of the merchandise. Sales returns are recorded by the company as they occur. 30 Transferred receivables of $66,000 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 8%. The note was discounted without recourse. Sep. 30 Lennox, Inc., paid the note amount plus interest to the bank. Required: 3. Prepare a schedule showing the effect of the journal entries on 2021 income before taxes.

Survey of Accounting (Accounting I)

8th Edition

ISBN:9781305961883

Author:Carl Warren

Publisher:Carl Warren

Chapter11: Cost-volume-profit Analysis

Section: Chapter Questions

Problem 11.6.3MBA

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Evergreen Company sells lawn and garden products to wholesalers. The company's fiscal year-end is December 31. During 2021, the following transactions related to receivables occurred:

Feb.	28	Sold merchandise to Lennox, Inc., for $20,000 and accepted a 6%, 7-month note. 6% is an appropriate rate for this type of note.
Mar.	31	Sold merchandise to Maddox Co. that had a fair value of $15,040, and accepted a noninterest-bearing note for which $16,000 payment is due on March 31, 2022.
Apr.	3	Sold merchandise to Carr Co. for $14,000 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 $4,800. Evergreen reduced the customer’s receivable balance by $6,600, the sales price of the merchandise. Sales returns are recorded by the company as they occur.
	30	Transferred receivables of $66,000 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 8%. The note was discounted without recourse.
Sep.	30	Lennox, Inc., paid the note amount plus interest to the bank.

Required:
3. Prepare a schedule showing the effect of the journal entries on 2021 income before taxes.

Income
Date
increase (decrease)
February 28
March 31
April 3
April 11
April 17
April 17
April 30
June 30
June 30
December 31
Total effect
%24

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