Question

Jansen Corporation shipped \(20,000 of merchandise on consignment to Gooch Company. Jansen paid freight costs of \)2,000. Gooch Company paid \(500 for local advertising, which is reimbursable from Jansen. By year-end, 60% of the merchandise had been sold for \)21,500. Gooch notified Jansen, retained a 10% commission, and remitted the cash due to Jansen. Prepare Jansen’s journal entry when the cash is received.

Short answer

Revenue is $21,500.

Step-by-step solution

Meaning of Freight Cost

Freight expenditure is the fee charged by a carrier for transporting cargo to a destination locationfrom a source location. The individual who wants the items carried from one site to other isresponsible for the cost.

Journal entries when cash is received

Date	Particular	Debit ($)	Credit ($)
	Cash a/c	18,850
	Advertising expense a/c	500
	Commission expense a/c (21,500*10%)	2,150
	Revenue from consignment sales a/c		21,500
	Cost of goods sold a/c	13,200
	Inventory on consignment a/c		13,200

Working Notes:

Revenue from consignment sales = $21,500

Commission Retained = 10%

$\begin{array}{rcl}\mathrm{Commision}\mathrm{expense}& =& \mathrm{Revenue}\mathrm{from}\mathrm{sales}\times \mathrm{Commission}\mathrm{retained}\\ & =& \$21,500\times 10\%\\ & =& \$2,150\end{array}$

Advertising Expense = $500

$\begin{array}{rcl}\mathrm{Cash}& =& \mathrm{Revenue}\mathrm{from}\mathrm{sale}-\left(\mathrm{Advertising}\mathrm{expense}+\mathrm{Commission}\mathrm{expenses}\right)\\ & =& \$21,500-\left(\$500+\$2,150\right)\\ & =& \$21,500-\$2,650\\ & =& \$18,850\end{array}$

Jansen co. shipped merchandise of cost = $20,000

Freight cost paid by Jansen = $2,000

$\begin{array}{rcl}\mathrm{Total}\mathrm{cost}\mathrm{of}\mathrm{merchandise}& =& \mathrm{Merchandise}\mathrm{cost}+\mathrm{Freight}\mathrm{cost}\\ & =& \$20,000+\$2,000\\ & =& \$22,000\end{array}$

Only 60% of merchandise has been sold by the end of the year.

$\begin{array}{rcl}\mathrm{Cost}\mathrm{of}\mathrm{goods}\mathrm{sold}& =& \mathrm{Total}\mathrm{cost}\mathrm{of}\mathrm{merchandise}\times \mathrm{Merchandise}\mathrm{sold}\\ & =& \$22,000\times 60\%\\ & =& \$13,200\end{array}$