Larkspur Company is presently testing a number of new agricultural seeds that it has recently harvested. To
Question:
Larkspur Company is presently testing a number of new agricultural seeds that it has recently harvested. To stimulate interest, it has decided to grant to five of its largest customers the unconditional right of return to these products if not fully satisfied. The right of return extends for 4 months. Larkspur estimates returns of 20%. Larkspur sells these seeds on account for $1,500,000 (cost $750,000) on January 2, 2017. Customers are required to pay the full amount due by March 15, 2017.
a. Prepare the journal entry for Larkspur at January 2, 2017. (to recognize revenue, to record COGS)
b. Assume that one customer returns the seeds on March 1, 2017, due to unsatisfactory performance. Prepare the journal entry to record this transaction, assuming this customer purchased $100,000 of seeds from Larkspur .
c. Assume Larkspur prepares financial statements quarterly. Prepare the necessary entries (if any) to adjust Larkspur’s financial results for the above transactions on March 31, 2017, assuming remaining expected returns of $36,000.
Horngrens Accounting
ISBN: 978-0133855371
10th Canadian edition Volume 1
Authors: Tracie L. Miller-Nobles, Brenda L. Mattison, Ella Mae Matsumura, Carol A. Meissner, Jo-Ann L. Johnston, Peter R. Norwood