Final answer:
In the consignment sales scenario between Green Co. and Butters Company, the journal entries include recording the sale of merchandise, retention of commission by Butters, and reimbursement of advertising costs. Butters records the sales revenue and commission expense, while Green records receipts and commission revenue.
Step-by-step explanation:
Journal Entry for Consignment Sales
The situation describes a consignment arrangement between Green Co. and Butters Company, which includes various transactions. Butters has sold a portion of the merchandise and incurred advertising costs that are reimbursable. Additionally, Butters is entitled to a commission for the sales made. Here is how to record the journal entries:
When Butters sells one-fourth of the consigned merchandise for $80,000 and retains a 20% commission, the entries on Butters' books would be as follows:
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- Cash……………………………………….…$80,000
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- To Sales…………………………………..…..$80,000 (Recording the sales revenue)
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- Commission Expense...............………$16,000
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- To Cash…………………………………..……$16,000 (Paying the commission to Green Co.)
Next, Green Co. needs to reimburse Butters for the advertising expenses:
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- Advertising Expense………..............…$3,200
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- To Cash…………………………………..……$3,200 (Cash paid for advertising)
Finally, to record the money owed to Green after the sale and commission:
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- Cash…………………………………...…..$64,000
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- Commission Revenue…………….……$16,000
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- To Consignment Sales…………………$80,000 (Actual cash remittance minus commission)
Notice that Green's cost of merchandise and freight costs aren't included in these entries as they are costs to Green for sending the products, not costs related to Butters' selling activities. The entries deal solely with the sale transaction, the commission, and the reimbursement of advertising expenses.