Glayds is an accrual-basis that uses a periodic inventory system (with temporary

Question

Glayds is an accrual-basis that uses a periodic inventory system (with temporary accounts) 1. Gladys issued $500,000 of 10-year bonds that will pay a stated annual rate of interest of 6% semi-annually until maturity. Comparable bonds are yielding 8% annual interest, so Gladys sells the bonds for a cash amount that will yield an 8% effective interest return to investors. 2. Gladys makes a loan to Bittersweet and receives in exchange a three-year, $50,000 note bearing interest at a 9% annual rate. Interest is paid annually. The market rate of interest for similar notes with similar risk is 11%, and Gladys thus recognizes some discount upon the issuance of the note. 3. Consigned $123,000 of Merchandise Inventory to Pipers. Gladys retains title to the goods, and will record sales only if informed of such by Pipers, who will keep 15% of the sales price under the consignment arrangement. 4. Gladys factors $200,000 (gross sales value, as the discount period has expired) of its Accounts Receivable from the sale in transaction 33 (dr. a/r 686,000 cr. sales-merch inv 686,000) on a without recourse basis. The factor, Fairies, assesses a finance charge of 4% of the gross accounts receivable factored, and retains 5% of the receivables for probable adjustments.

Explanation / Answer

3. Consigned $123,000 of Merchandise Inventory to Pipers. Gladys retains title to the goods, and will record sales only if informed of such by Pipers, who will keep 15% of the sales price under the consignment arrangement.

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