Xtra Foods is a meat processing company. The annual financial statements for the year ended July 31, 2020, were issued on September 25, 2020. Consider the following events (assume all amounts are material): 

a. Xtra received a shipment of lambs (i.e., raw materials) on July 27, 2020. The company paid the related invoice of $325,000 on August 25, 2020.

b. The July 27 shipment was processed into finished goods over the following four days (July 28 to July 31). The company incurred processing costs of $550,000. (This amount appropriately includes labour and overhead costs.) This processed lamb was shipped to customers on August 3 for sales revenue totalling $1,230,000.

c. On September 15, Xtra staff discovered contamination of the products processed in the final four days of the fiscal year. Management did not include the effect of this discovery in the financial statements of July 31, 2020.

d. On October 1, 2020, the company issued a recall notice. The recall was for all lamb meat produced between July 28 and July 31. The recalled lamb no longer had commercial value. Management estimates the direct costs of the recall to be $1.5 million.

Required:

Analyze the above facts and, where appropriate, indicate the journal entries that should have been recorded for each transaction. Where journal entries are not adequate, describe the appropriate accounting treatment of the events. Be careful to specify the fiscal year in which each event should be recognized or disclosed. (“2020” means the fiscal year ended July 31, 2020.)

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a. b. C. d. Fiscal year Journal entries or explanation