Problem 18-5 Martinez Ranch & Sandhill is a distributor of ranch and farm equipm
ID: 2338349 • Letter: P
Question
Problem 18-5 Martinez Ranch & Sandhill is a distributor of ranch and farm equipment. Its products range from small tools, power equipment for trench-digging and fencing, grain dryers, and barn winches. Most products are sold direct via its company catalog and Internet site. However, given some of its specialty products, select farm implement stores carry Martinez's products. Pricing and cost information on three of Martinez's most popular products are as follows. Standalone Selling Price (Cost) Item $3,800 ($2,100) Mini-trencher Power fence hole auger ,100 (800) Grain/hay dryer Respond to the requirements related to the following independent revenue arrangements for Martinez Ranch & Sandhill. 14,200 (11,800) On January 1, 2017, Martínez sells so augers to Mills Farm & Fleet for $55,000. Mills signs a 6-month note at an annual interest rate of 2%. Martinez allows Mills to return any auger that it cannot use within 40 days and receive a full refund. Based on prior experience, Martinez estimates that 5% of units sold to customers like Mills will be returned (using the most likely outcome approach). Martinez's costs to recover the products will be immaterial, and the returned augers are expected to be resold at a profit. Prepare the journal entry for Martinez on January 1, 2017, (Credit account titles are automatically indented when the amount is entered. Do not indent manually. It no entry is required, select "No entry" for the account titles and enter o for the amounts.) Account Titles and Explanation Debit Credit aready posted To record sales) already posted To record cost of goods sold) LINK TO TEXT LINK TO TEXT LINK TO TEXTExplanation / Answer
In the books of Martinez Ranch and sandhill Date Account title & Explanations Debit Credit Amount in $ January 1, 2017 Mills Farms and Fleet(Accounts Receivable) 55000 Sales Revenue 55000 To record the sales Cost of goods sold (50*800) 40000 Inventory 40000 However Since the company is certain that return will most likely to happen it has to provide for the same. The entry for which will be as follow January 1, 2017 Sales Return and allowance (5%) 2750 Mills Farms and Fleet(Accounts Receivable) 2750 To record the provision for sales return Inventory- right to return by customer (5%) 2000 Cost of goods sold-estimated returns 2000 To record the reversal of cost of goods sold for sales return August 10, 2017 Farm Co-op(Accounts Receivable(15*3800) 57000 Sales Revenue 57000 To record the sales Cost of goods sold (15*2100) 31500 Inventory 31500