January 1 Sold merchandise to Nellie Co. and accepted a 2-year, $120,000 noninterest-bearing note due on December 31, 2022. The discount rate is 6%. Redbud used the effective interest method to recognize interest revenue on the note. Ignore COGS. August 1 Sold merchandise to Red Cat Co. for $15,000 and accepted an 8%, 6-month note. Principal and interest are due on January 31, 2022. Ignore COGS.

December 1 Sold merchandise to Magic Dog Co. and accepted a 3-month, $12,000 noninterest-bearing note due on February 28, 2022. The cash selling price of the merchandise was $11,730. Ignore COGS.
December 4 Sold merchandise to Black Dog Co. on account for $9,000 with terms 2/10, n/30. Redbud used the gross method to record sales discounts. Ignore COGS.

December 12 Collected the amount due from Black Dog Co.

December 31 Sold $80,000 of accounts receivable to Fat Cat Bank without recourse. Fat Cat charged a 1% finance fee and retained 8% to cover possible adjustments.

December 31 Recorded adjusting entry for estimated sales returns. 15% of total sales are estimated to be returned. 2021 total sales were $1,000,000. Actual returns previously recorded in 2021 were $100,000. Cost of inventory is 60% of sales price.

a. Record each of the items above for Redbud Company.

b. Record any other necessary December 31, 2021, adjusting entries for Redbud.

c. Redbud’s preliminary 2021 net income without the effects of the entries in a. and b. is $100,000. Determine the correct 2021 net income. Ignore income taxes.

Answer rating: 100% (QA)

Answers a 01012016 Notes Receivables 120000 Premium on Notes 13200 Sales 1068... View the full answer