Jpian\'s Digest - Consignment Sales (Quicknotes in AFAR 2020) PDF

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JPIAN's Digest- Consignment Sales (Quicknotes in AFAR 2020)
Summary of Consignment Sales great for reviewing.

File is originally from Junior Philippine Institute of Accountants- Pamantasan ng Lungsod ng Maynia. Copyright Infringement not intended...

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Advanced Financial Accounting and Reporting

AFAR: Consignment Sales DESCRIPTION Consignment is a specialized method of marketing certain types of products makes use of an agreement. Under this arrangement, the consignor (manufacturer or wholesaler) ships merchandise to the consignee (dealer), who is to act as an agent for the consignor in selling the merchandise. IMPLEMENTATION The consignor recognizes revenue only after receiving notification of the sale and the cash remittance from the consignee. - consignor carries the merchandise as inventory throughout the consignment. - consignee records commission revenue usually some percentage of the selling price. KEY TERMS CONSIGNOR- NOT YET A SALE when delivered to consignee. CONSIGNEE- SALES AGENT, NOT YET PURCHASED when recieved consigned goods. Consignor owns the GOODS until

unsold by consignee. Consignee sells consigned goods Consignee receives the profit from sale Consignee remits the payable amount to consignor -(Payable to Consignor/Receivable from Consignee) Consignee receives commission from consignor -(Commission Revenue/ Commission Expense) ILLUSTRATION CONSIGNOR company entered the ff transactions in the year with CONSIGNEE company 1. Shipped goods worth 100,000 to CONSIGNEE 2. Freight of 1000 to be paid by CONSIGNOR was paid by CONSIGNEE 3. CONSIGNEE sold half of the goods for 202,000. 4. CONSIGNEE consignee remitted the cash to CONSIGNOR

CONSIGNEE 1. Inventory on consignment 100,000 Finished Goods 100,000

CONSIGNOR No entry since there is no purchase

2. Freight In Payable to Consignee

Receivable from Consignor 1000 Cash 1000

1000 1000

3. NO ENTRY

Cash 202,000 Payable to Consignor 202,000

4. Cash 170,700 Commission Expense 30,300 Payable to Consignee 1,000 Sales Revenue 202,000

Payable to Consignor 202,000 Commission Revenue 30,300 Receivable to consignor 1,000 Cash 170,700

5. Cost of Goods Sold Inventory on Consignment

NO ENTRY

100,000 1000,000

Note: no. 5 is the entry to derecognize the inventory on consignment account upon selling.

Contributors: Contador, Christian

Advanced Financial Accounting and Reporting

QUESTIONS: Consigned goods are recognized as revenues by the: a. consignor when a sale to a third party has occurred. b. consignor when the merchandise has been shipped to a consignee. c. consignee when a sale to a third party has occurred. d. consignor when it receives a payment from consignee for goods sold. Answer: D. On august 5, 2020, Deib Lohr Furnitures shipped 20 dining sets on Consignment to Maxpein Hardware Inc. The cost of shipping the dining sets amounted to P18,000 and was paid for by Deib Lohr Furnitures. On December 30, 2020, the consignee reported the sale of 15 dining sets at P8,500 each. The consignee remitted payment of the amount due after deducting a 6% commission, an advertising expense of P3,000 and installation and setup costs of 3,900.

The amount received as cash by Deib Lohr Furnitures is a. 127,500 b. 119,850 c. 112, 950 d. 116, 850 Answer: Cash remitted: (15 x P8,500) - (127,500 x 6%*) - 3,000 3,900 = 112, 950 ; C. X Co. A consignee, paid the freight cost for goods shipped from L Co.,a consignor. These freight costs are to be deducted from X’s payments to L when the consignment goods are sold. Until X sells the goods, the freight costs should be included in X’s a. Cost of goods sold. b. freight out costs c. freight in costs d.Accounts receivable Answer: D.

References: Intermediate Accounting: IFRS Edition, by Kieso,Weygandt, and Warfield.

Contributors: Contador, Christian...