91Ó°ÊÓ

P18-5 (LO2,3,4) (Allocate Transaction Price, Returns, and Consignments) Ritt Ranch & Farm 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 Ritt’s products. Pricing and cost information on three of Ritt’s most popular products are as follows.

Item	Standalone selling price (Cost)
Mini-trencher	\(3,600 (2,000)
Power fence hole auger	\)1,200 (800)
Grain/Hay dryer	\(14,000 (11,000)

Instructions

Respond to the requirements related to the following independent revenue arrangements for Ritt Ranch & Farm.

On April 25, 2017, Ritt ships 100 augers to Farm Depot, a farm supply dealer in Nebraska, on consignment. By June 30, 2017, Farm Depot has sold 60 of the consigned augers at the listed price of \)1,200 per unit. Farm Depot notifies Ritt of the sales, retains a 10% commission, and remits the cash due Ritt. Prepare the journal entries for Ritt and Farm Depot for the consignment arrangement.

Step by step solution

01

Definition of Consignment

The process in which the goods are kept in possession of a third party for selling is known as a consignment. The third party is provided with a commission for selling goods.

02

Journal entries for Ritt

Date	Accounts and Explanation	Debit $	Credit $
25 April 2017	Inventory on Consignment (100 x $800)	$80,000
	Finished goods inventory		$80,000
30 June 2017	Cash	$64,800
	Commission for consignment sales ($1200 x 60 x 10%)	$7,200
	Revenue from consignment sales ($1200 x 60)		$72,000
30 June 2018	Cost of goods sold ($800 x 60)	$48,000
	Inventory on consignment		$48,000
		$200,000	$200,000

03

Journal entries for Farm Depot

Date	Accounts and Explanation	Debit $	Credit $
25 April 2017	No journal entry will be made because Ritt will possess the inventory.
30 June 2017	Cash	$72,000
	Payable to consignor		$64,800
	Commission revenue		$7,200
30 June 2017	Payable to consignor	$64,800
	Cash		$64,800
		$136,800	$136,800

Unlock Step-by-Step Solutions & Ace Your Exams!

• Full Textbook Solutions

  Get detailed explanations and key concepts

• Unlimited Al creation

  Al flashcards, explanations, exams and more...

• Ads-free access

  To over 500 millions flashcards

• Money-back guarantee

  We refund you if you fail your exam.

Over 30 million students worldwide already upgrade their learning with 91Ó°ÊÓ!