Reference no: EM131802112
Redbud Company sells pet care products to wholesalers. Redbud records adjusting entries annually at December 31. During 2016, the following transactions related to receivables occurred:
January 1 Sold merchandise to Nellie Co. and accepted a 2-year, $120,000 noninterest-bearing note due on December 31, 2017. The discount rate is 6%. Redbud used the effective interest method to recognize interest revenue on the note.
August 1 Sold merchandise to Red Cat Co. for $15,000 and accepted an 8%, 6-month note. Principal and interest are due on January 31, 2017.
December 1 Sold merchandise to Magic Dog Co. and accepted a 3-month, $12,000 noninterest-bearing note due on February 28, 2017. The discount rate is 9%.
December 4 Sold merchandise to Black Dog Co. for $9,000 with terms 2/10, n/30. Redbud used the gross method to record sales discounts.
December 12 Collected the amount due from Black Dog Co.
December 31 Sold $80,000 of accounts receivable to Fat Cat Bank without recourse. Fat Cat charged a 1% finance fee and retained 8% to cover possible adjustments.
a. Record each of the transactions above for Redbud Company. Ignore cost of goods sold.
b. Record December 31, 2016 adjusting entries for Redbud.
c. Redbud's preliminary 2016 net income without the effects of the entries in a. and b. is $100,000. What is the correct 2016 net income? Ignore income taxes.