Question

Recording Revenue and Receivables Under a Consignment Arrangement

On March 15, 2020, Drexel Corp. provides goods to a retailer through consignment where Drexel Corp. retains ownership of the goods until the goods are sold to the retailer’s customer. Sale to the final customer is documented when the goods are scanned at the cash register of the retailer. Drexel Corp. receives a daily report on the number of units sold by the retailer to the end customer. Any unsold product can be returned to Drexel Corp. at anytime. Drexel Corp. has the right through the contract to recall any goods shipped and to transfer the goods to another retailer as a way to increase the rate of sales to the final customer. After the sale of the products to the final customer, the retailer cannot return the items to Drexel Corp. During March of 2020, Drexel Corp. transferred 720 units to the retailer, and the retailer sold 600 units. The product cost Drexel Corp. $80 per unit and the product was sold for $115 per unit to the end customer. The retailer sent a payment to Drexel Corp. for the cash collected on the sale of product less a 10% commission on April 7, 2020.

a. At what point should Drexel Corp. recognize revenue?

AnswerRecognize revenue when goods are shipped to retailerRecognize revenue when the product is sold to the end customerRecognize revenue when payment is sent from the retailer to Drexel

b. Record Drexel’s entries on March 15, 2020, March 31, 2020, and April 7, 2020.

Note: If a journal entry (or a line of the journal entry) isn't required for the transaction, select "N/A" as the account names and leave the Dr. and Cr. answers blank (zero)

Answer 1

Journal entries in the books of Drexel's (Consignor) Date Particulars Debit Credit 57600 March15,2020 Consignment A/C Dr Goods sent on consignment A/C (Being Goods sent on consignment Basis) 57600 Dr 69000 Consignee A/C Consignment (Being sale of goods) 69000 Dr 9600 March 31, 2020 Consignment stock a/c Consignment (being closing stock transfeered) 9600 April7,2020 Dr 69001 Consignment A/C consignee (being commisssion recorded) 6900 April 7,2020 62100 Bank A/C consignee (being payment received, after deduction of commission) 62100

Working Notes 1 Date of sale has not been recorded since it has not been mentioned in the question. 2 Cost of consignment is 720*80 3 sale of goods is 600*115 4 commission of the consignee is 600*115*10/100 5 value of closin stock is( 720-600)*80