From July 1 to August 30, 2020, Busy Beaver Ltd. completed the following transactions: On July 1, Busy Beaver sold 40 computers at a unit price of $3,000 to Heintoch Corp., terms 1/15, n/30. Average cost for these computers was $1,500. Busy Beaver also paid the freight costs of $3,200 cash. On July 5, Heintoch Corp. returned for full credit three damaged computers from the July 1 shipment. These were not returned to inventory. Heintoch agreed to pay the $240 freight cost to return the computers to Busy Beaver. On July 10, Busy Beaver received payment from Heintoch for the full amount owed from the July transactions. On July 14, Busy Beaver purchased 50 computers on account from Correl Computers Ltd. for $1,500 per unit plus freight for $4,000. On July 17, Busy Beaver sold $224,000 in computers and peripherals to Perkins Store, terms 1.5/10, n/30. Cost for these computers was $112,000. On July 26, Perkins Store paid Busy Beaver for half of its July purchases. On August 30, Perkins Store paid Busy Beaver for the remaining half of its July purchases. Busy Beaver uses the perpetual inventory system. Required: a. Prepare the entries for Busy Beaver Computers Ltd., assuming the gross method is used to record sales and sales discounts. b. Assume that Heintoch has access to a bank line of credit facility at a rate of 8%. Is it a good idea to pay within the discount period? Explain your answer using data from the question. c. Prepare the entries for July and August, assuming Busy Beaver is an IFRS company that uses the net method to record sales and sales discounts. Also assume that on August 30 year-end, Busy Beaver estimates sales returns and allowances to be $44,000 for the year just ended, which it considers to be significant. The unadjusted balance of its refund liability account prior to the July and August transactions was $23,000 credit.
From July 1 to August 30, 2020, Busy Beaver Ltd. completed the following transactions:
On July 1, Busy Beaver sold 40 computers at a unit price of $3,000 to Heintoch Corp., terms
1/15, n/30. Average cost for these computers was $1,500. Busy Beaver also paid the freight
costs of $3,200 cash. On July 5, Heintoch Corp. returned for full credit three damaged
computers from the July 1 shipment. These were not returned to inventory. Heintoch agreed
to pay the $240 freight cost to return the computers to Busy Beaver. On July 10, Busy Beaver
received payment from Heintoch for the full amount owed from the July transactions. On July
14, Busy Beaver purchased 50 computers on account from Correl Computers Ltd. for $1,500
per unit plus freight for $4,000. On July 17, Busy Beaver sold $224,000 in computers and
peripherals to Perkins Store, terms 1.5/10, n/30. Cost for these computers was $112,000. On
July 26, Perkins Store paid Busy Beaver for half of its July purchases. On August 30, Perkins
Store paid Busy Beaver for the remaining half of its July purchases. Busy Beaver uses the
perpetual inventory system.
Required:
a. Prepare the entries for Busy Beaver Computers Ltd., assuming the gross method is used
to record sales and sales discounts.
b. Assume that Heintoch has access to a bank line of credit facility at a rate of 8%. Is it a
good idea to pay within the discount period? Explain your answer using data from the
question.
c. Prepare the entries for July and August, assuming Busy Beaver is an IFRS company that
uses the net method to record sales and sales discounts. Also assume that on August
30 year-end, Busy Beaver estimates sales returns and allowances to be $44,000 for the
year just ended, which it considers to be significant. The unadjusted balance of its refund
liability account prior to the July and August transactions was $23,000 credit.
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