Question

Buffalo Corporation shipped $21,200 of merchandise on consignment to Gooch Company. Buffalo paid freight costs of $1,900. Gooch Company paid $520 for local advertising, which is reimbursable from Buffalo. By year-end, 61% of the merchandise had been sold for $21,400. Gooch notified Buffalo, retained a 10% commission, and remitted the cash due to Buffalo.

Prepare Buffalo entry when the cash is received.

Answer 1

1) Cash Dr. $19,260 (21,400-2,140)

Commission Expense Dr. $2,140 (10% of 21,400)

Sales Cr. $21,400

2) COGS Dr. $12932 (61% of 21,200)

Inventory Cr. $12932

Step-by-step explanation:

Cash received to Buffalo Corp. shall be total sales i.e. $21,400 less the commission retained by Gooch Co. i.e. 10% of $21,400.

Buffalo Corp. shall expense out the commission and Sales shall be recorded by the gross amount.

the second entry shows Inventory being credited by the amount of Cost i.e 61% of goods shipped to Gooch (61% of $21,200).