Reference no: EM132754213

ABC Ranch & Farm is a distributor of ranch and farm equipment. Its products range from small tools, power equipment for trench-digging and fencing, grain dryers, and barn winches. Most products are sold direct via its company catalogue and internet site. However, given some of its speciality products, select farm implement stores carry ABC's products. Pricing and cost information on three of ABC's most popular products are as follows

Item                             Standalone          Selling Price (cost)

mini-trencher             $3,600              ($2,000)

power fence hole augur  $ 1,200                  ($800)

Grain/hay dryer           $14,000                ($11,000)

Respond to the requirements related to the following independent revenue arrangements for ABC Ranch and Farm

a. On January 1,2019 ABC sells 40 augers to Mills Farm & Fleet for $48,000. Mills signs a 6-month note at an annual interest rate of 12%. ABC allows Mills to return any auger that it cannot use within 60 days and receive a full refund. Based on prior experience, ABC estimates that 5% of units sold to customers like Mills will be returned (using the most likely outcome approach). ABC's costs to recover the products will be immaterial and the returned augers are expected to be resold at a profit

Required:

Problem 1: Prepare the journal entry for ABC on January 1,2019.