Trade Ins and Repossessed Inventory
The Jamison Appliance Company began business on January 1,2007. The company decided from the beginning to grant allowances on merchandise traded in as partial payment on new sales. During 2008 the company granted trade in allowances of $64,035. The wholesale value of merchandise traded in was $40,875. Trade ins recorded at $39,000 were sold for their wholesale value of $27,000 during the year. The following summary entries were made to record annual sales of new merchandise and trade in sales for 2008.
|
Accounts Receivable |
439,890 |
|
|
Trade In Inventory |
64,035 |
|
|
Sales |
|
503,925 |
|
Cash |
27,000 |
|
|
Loss on Trade In Inventory |
12,000 |
|
|
Trade In Inventory |
|
39,000 |
When a customer defaults on the accounts receivable contract, the merchandise is repossessed. During 2008 the following repossessions occurred:
|
Original Sales |
Unpaid Contract |
|
|
On 2007 contracts |
$37,500 |
$15,600 |
|
On 2008 contracts |
24,000 |
17,800 |
The wholesale value of these goods is estimated as follows:
(a) Goods repossessed during year of sale are valued at 50% of original sales price.
(b) Goods repossessed in later years are valued at 20% of original sales price.
Instructions:
1. At what values should Jamison Appliance report the trade in and repossessed inventory at December 31, 2008?
2. Give the entry that should have been made to record the repossessions of 2008.
3. Give the entry that is required to correct the trade in summary entries.