Final answer:
Green Co. records the freight costs and recognizes revenue minus Butters' commission and reimbursable expenses upon sale. The inventory remains on Green's books until sold, and the accounting profit for the self-check question is $50,000.
Step-by-step explanation:
To record the consignment transaction between Green Co. and Butters Company, Green Co. would record the $2,500 of freight costs it paid as an Inventory Shipping Expense since the goods remain in their inventory until sold by Butters Company. Butters Company selling one-fourth of the consigned goods for $80,000 cash means Green Co. would recognize revenue of $64,000 (since Butters retains a 20% commission).
Butters would owe Green Co. $64,000 less the local advertising costs of $3,200 that are reimbursable, netting $60,800 to be remitted to Green Co. No entry is initially made for the cost of goods ($60,000) as they are still recorded as inventory for Green Co. until the sale is made by Butters Company.
From the information provided, the firm's accounting profit from the self-check question would be calculated as follows: Revenue of $1 million minus the expenses (labor of $600,000, capital of $150,000, and materials of $200,000), which totals $950,000 in expenses. Therefore, the accounting profit would be $1 million - $950,000 = $50,000.