On August 1, 2020, Kazazis Company sold inventory to Magic Company and received Magics 9-month, noninterest-bearing $100,000

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Question:

On August 1, 2020, Kazazis Company sold inventory to Magic Company and received Magic’s 9-month, noninterest-bearing $100,000 note due April 30, 2021. The cash selling price of the inventory was $94,000. The cost of the inventory was $60,000. Kazazis records adjusting entries annually at December 31.

a. Record the August 1, 2020, journal entries (including COGS) for Kazazis.

b. If Kazazis recorded the note as an interest-bearing note on August 1, 2020, (i.e., did not record a discount on the note), how would the financial statements be misstated (overstated/understated and $ amount)?

c. Record the December 31, 2020, adjusting entry for Kazazis.

d. If Kazazis’ 2020 net income without including the Aug. 1 sale or December 31 adjusting entry was $200,000, what is the correct 2020 net income? Ignore taxes.

e. What amounts related to the note will Kazazis report on its 2020 balance sheet?

f. Record the April 30, 2021, journal entry/entries for Kazazis. (You may choose to record 1 entry as we did in the example in class or 2 entries as required by Connect.)