Consignment Sales Bellweather Industries was interested in gaining a foothold in a number of western states.

Bellweather offered several companies an opportunity to carry their line of scuba and diving gear on a consignment basis. For providing display space and local advertising, the consignee receives 25 percent of the sales price of all goods sold. On July 8, Bellweather shipped goods with a selling price of $89,000 to California Outfitters on consignment. The goods cost Bellweather $45,000 to manufacture. California Outfitters still had all of the goods on hand at the end of July, but sold goods for $65,000 in August that had cost Bellweather $33,000 to produce.

a. On July 31, will the goods shipped from Bellweather to California Outfitters appear on Bellweather’s balance sheet or that of California Outfitters, or both? At what amount will the goods be reported?

b. With respect to the goods shipped to California Outfitters, what amount of profit should Bellweather recognize on the sale of those goods? How much revenue would be recognized in July and how much in August? What expenses should be recognized by Bellweather in connection with the sale, and when should they be reported in Bellweather’s income statement?

c. How would California Outfitters’ income from the sale of Bellweather’s goods be reported in its income statement?

d. If either Bellweather Industries or California Outfitters were trying to get a bank loan using its inventory as collateral, what possible problems might arise given the consignment arrangement between them?