Question

Willett Co. had the following amounts related to the sale of consignment inventory: Cost of merchandise shipped to consignee $100,000 Sales revenue for three fourths of inventory sold by consignee $125,000 Freight cost for merchandise shipped $10,000 Advertising paid for by consignee, to be reimbursed $5,000 10% commission due the consignee for the sale $12,500 What amount should Willett report as net profit (loss) from this transaction for the year?

Answer 1

Answer:

Net profit: 52,500

Explanation:

Sales revenue   125,000 (Only recogniced by the sold goods)

COSG                 -75,000 (Only recogniced by the sold goods)

Commission        12,500 (recognized even without being collected)

Freight cost        -10,000 (It´s an expence of the period)  

Net Profit:            52,500

The rest of goods given to consignee is an Asset (Consignment inventory) for 25,000

The avertising paid for by consignee, to be reimbursed $5,000 is a liability.