Green Lawn Chemical company sells lawn and garden chemicals through several hundred garden suppy stores and department store garden shops. It was Green Lawn's policy to ship goods to these retailers in late winter on a consignment basis. Periodically, a Green Lawn field representative would count the Green Lawn products on hand at a retailer; based on this account, the previous account and intervening shipments, it was determined how many items the retailer had sold since the previous count and the retailer was billed for these goods by Green Lawn.
a. Assume Green Lawn shipped goods costing Green Lawn $8400 and with a wholesale price (i.e. price to the retailer, not the end user) of $12,600 to Carson's Garden Shop. Prepare journal entries to record this entry on both (1) Green Lawn's books and on (2) Carson's Books
b. Later, the field representative's count indicated that Carson's had sold some of these goods, totallying $6720 at retail, $5040 at wholesale, and $3360 at Green Lawn's cost. Prepare journal entries to reflect these sales (1) on Green Lawn's books and (2) on Carson's Books.
The problem only asks for entries on Green's books, but let's review how consignment sales work:
1. Green records the transfer to the consignee, but doesn't record any income until the consignee sells the goods.
2. Green sells at wholesale; Carson sells at ...
The solution reviews the concepts in accounting for consignment sales and then goes through the journal entries which need to be recorded together with good explanations.