Question1:
Create journal entries for the subsequent related transactions using the gross method:
1) Sale of inventory on account for $8,000. The cost of the inventory sold is $3,500. Terms 1/5, n/15
2) Receive a return on the above sale for $1,000. The cost of the inventory returned is $300.
3) Evaluate the accounts receivable balance from the transactions above and create the journal entry to show receipt of full payment from the customer in 3 days.
4) Answer the subsequent questions:
a) What is the total sales revenue for the three transactions above?
b) Determine the cost of goods sold amount for the three transactions above?
c) Evaluate the gross profit for the three transactions above?
d) Evaluate the gross profit percentage for the three transactions above?
e) If the inventory turnover rate is 7.2, what does this mean for the company?
f) Do you think that the gross profit percentage and inventory turnover rate are separate or related if you are analyzing the company? Why?
Question2:
On 9/1/13, JEH Company pledged $620,000 of receivables as collateral in exchange for a $500,000 loan at 12 percent annual interest and a finance fee of 1.5% of accounts receivable.
1) What is the entry to record the pledging of these receivables on 9/1/13?
2) JEH Company collects $400,000 cash from customers on the pledged receivables through the month of September (9/1/13 to 9/30/13). How would these collections be recorded?
3) Under collateralized borrowings, when cash is received on the receivables, the loan is repaid. Evaluate the appropriate journal entry to make the required payment on the loan on 10/1/13 (one month)?