PART A: The following adjusting entries/events for 2024 were not recorded: 1. Journal entries for sales returns were not recorded. Lehigh Jeans estimates an additional $5,000 to be returned in 2025 for 2024 sales. All 2023 sales are outside the return period. Refund liability had a beginning balance of $3,000. During the year, customers returned merchandise with a sales price of $7,000, of which 2,000 were returns from sales in previous periods. 2. 1,600 in AR were written-off. In addition, 500 was collected from a customer whose account was written off in 2023. Bad debt expense is estimated by computing net realizable value of the receivables. The allowance for uncollectible accounts is estimated to be 5% of the year-end balance in accounts receivable. 3. On June 1 Lehigh Jeans sold merchandise on account to Caro Co. for $5,000 and accepted a 8%, 12 -month note. 8% is an appropriate interest rate for this type of note. On Dec 1 , Lehigh Jeans discounted the Caro Co. note at the bank. The bank's discount rate is 15%. 4. On Dec 1 sold merchandise to BBT Inc. for $2,500 with terms 2/15,n/20. Lehigh Jeans uses the gross method to account for cash discounts. BBT Inc. paid on Dec 15. 5. On Dec 15, Lehigh Jeans transferred receivables of $10,000 to a factor without recourse. Factor immediately remitted to Lehigh 90% minus a 2% factoring fee of the factored amount and retains the remaining 10% to cover the factoring fee and to provide a cushion for potential sales returns and allowances. The fair value of the last 10% of receivables is $600. 6. On Nov 1, 2023, Lehigh Jeans sold merchandise to Retailer Inc. in exchange for a $8,000,10% notes receivable. The firm recorded all journal entries related to this receivable in 2023 . The notes receivable plus accrued interest was due Dec 1, 2024. On August 31, 2024, Lehigh Jeans determined that the retailer is experiencing financial difficulties and agreed to settle the note and interest receivable for $8,000. No bad debt expense was estimated for this note yet prior to August. 7. Lehigh accepted a four-month noninterest-bearing note of $2,800 on January 1, 2024. The note was accepted as payment of a delinquent accounts receivable of $2,600. On May 1,2024 , Lehigh collected the cash payment on the note. Provide all journal entries associated with this receivable. 8. On Aug 1, 2023 Lehigh Jeans sold merchandise on account to ABC in exchange for a 5 year $4,000,10% notes receivable. Interest payments are due each Aug 1 every year and principal is due on Aug 1, 2028. The firm recorded all journal entries related to this receivable in 2023. As ABC is experiencing financial difficulties, it was not able to pay interest on Aug 1,2024 . The note terms were re-negotiated on Aug 2, 2024 as follows: Lehigh Jeans agreed to reduce the interest payment due in 2024 to 200 , reduce future interest payments to $300, and to reduce the principal due to $3,500. Provide all journal entries related to this receivable in 2024 (hint: do not forget to accrue interest on Dec 31). 9. During the month of October 2024 , Lehigh Jeans ran a promotion and offered a coupon for 20% off a future purchase with the purchase of one pair of jeans (customers that purchased multiple pairs of jeans received multiple coupons, however coupons cannot be combined). Lehigh Jeans sold 100 pairs of jeans for $50 each and provided 10020% off coupons. Historically, 50% of the coupons have been redeemed for an average invoice of $120. By December, customers used coupons for a total invoice amount of $3,000. 10. On November 1, 2024 Lehigh Jeans started a loyalty program through which qualifying customers can accumulate points and redeem these points for discounts on future purchases. Customers receive 1 point for each dollar spent on qualifying purchases. Redemption of each point reduces the price of one dollar of future purchases by 30% (or 30 cents). Lehigh Jeans estimates a 70% probability that points will be redeemed. By the end of the year $2,000 in sales qualified for this program and 500 points were redeemed as of the end of the year for sales with a retail value of $1,000. 11. On Oct 1, Lehigh Jeans entered into a contract with a retailer to design and manufacture uniforms for the retailer's employees. The contract requires Lehigh Jeans to design and to manufacture and deliver 300 uniforms by Nov 1 . The cost of each uniform is $30 and the costs incurred to design the jeans are $300 (record as wages expense and payable). The retailer promises to pay $12,000 when the uniforms are delivered and an additional consideration of $2,500 on March 15, 2025 if the uniforms are still in good shape (color does not fade, and so on). If the uniforms are not in good condition by March 15 , Lehigh will refund 1,500 . Lehigh Jean offers the designing service separately from manufacturing and usually charges $1,000 for this service. The stand-alone value of the uniforms is $45. In October, Lehigh Jeans estimates a 70% chance they will receive the bonus in March and recorded the variable consideration based on the expected value. However, internal auditors discovered an email from the retailer in December which detailed a number of quality issues with the uniforms. Based on this email, the internal auditors estimate a 40% chance that the bonus will be received. PART B: The internal audit department discovered the following recorded items that may need correction: 12. On March 1 Lehigh sold merchandise to a customer in exchange for a $5,000, two-year, noninterest-bearing note when an equivalent loan would carry 10% interest. Lehigh recorded $5,000 in sales revenue for this transaction. 13. On December 15 Meta retail placed an order for 100 pairs of Jeans and provided payment on the same date. Meta expects to have sufficient shelf space in its warehouse on Jan 5 and requests that the jeans not be delivered prior to that date. By the end of the year the jeans have not be shipped. Lehigh recognized revenue for this sale on Dec 15. 14. During 2024 Lehigh Jeans placed jeans with a retail value of $10,000 on consignment with Lorelai Inc. and recorded this entire amount as revenue. As of Dec 31, Lorelai Inc. sold jeans with a retail value of $6,000 to end customers. Requirement 1. Provide the journal entries for items in Part A. Do not forget about the related COGS and inventory entries. 2. Provide the Journal entries for items in Part B (both as they were incorrectly recorded and the correct journal entries). PART A: The following adjusting entries/events for 2024 were not recorded: 1. Journal entries for sales returns were not recorded. Lehigh Jeans estimates an additional $5,000 to be returned in 2025 for 2024 sales. All 2023 sales are outside the return period. Refund liability had a beginning balance of $3,000. During the year, customers returned merchandise with a sales price of $7,000, of which 2,000 were returns from sales in previous periods. 2. 1,600 in AR were written-off. In addition, 500 was collected from a customer whose account was written off in 2023. Bad debt expense is estimated by computing net realizable value of the receivables. The allowance for uncollectible accounts is estimated to be 5% of the year-end balance in accounts receivable. 3. On June 1 Lehigh Jeans sold merchandise on account to Caro Co. for $5,000 and accepted a 8%, 12 -month note. 8% is an appropriate interest rate for this type of note. On Dec 1 , Lehigh Jeans discounted the Caro Co. note at the bank. The bank's discount rate is 15%. 4. On Dec 1 sold merchandise to BBT Inc. for $2,500 with terms 2/15,n/20. Lehigh Jeans uses the gross method to account for cash discounts. BBT Inc. paid on Dec 15. 5. On Dec 15, Lehigh Jeans transferred receivables of $10,000 to a factor without recourse. Factor immediately remitted to Lehigh 90% minus a 2% factoring fee of the factored amount and retains the remaining 10% to cover the factoring fee and to provide a cushion for potential sales returns and allowances. The fair value of the last 10% of receivables is $600. 6. On Nov 1, 2023, Lehigh Jeans sold merchandise to Retailer Inc. in exchange for a $8,000,10% notes receivable. The firm recorded all journal entries related to this receivable in 2023 . The notes receivable plus accrued interest was due Dec 1, 2024. On August 31, 2024, Lehigh Jeans determined that the retailer is experiencing financial difficulties and agreed to settle the note and interest receivable for $8,000. No bad debt expense was estimated for this note yet prior to August. 7. Lehigh accepted a four-month noninterest-bearing note of $2,800 on January 1, 2024. The note was accepted as payment of a delinquent accounts receivable of $2,600. On May 1,2024 , Lehigh collected the cash payment on the note. Provide all journal entries associated with this receivable. 8. On Aug 1, 2023 Lehigh Jeans sold merchandise on account to ABC in exchange for a 5 year $4,000,10% notes receivable. Interest payments are due each Aug 1 every year and principal is due on Aug 1, 2028. The firm recorded all journal entries related to this receivable in 2023. As ABC is experiencing financial difficulties, it was not able to pay interest on Aug 1,2024 . The note terms were re-negotiated on Aug 2, 2024 as follows: Lehigh Jeans agreed to reduce the interest payment due in 2024 to 200 , reduce future interest payments to $300, and to reduce the principal due to $3,500. Provide all journal entries related to this receivable in 2024 (hint: do not forget to accrue interest on Dec 31). 9. During the month of October 2024 , Lehigh Jeans ran a promotion and offered a coupon for 20% off a future purchase with the purchase of one pair of jeans (customers that purchased multiple pairs of jeans received multiple coupons, however coupons cannot be combined). Lehigh Jeans sold 100 pairs of jeans for $50 each and provided 10020% off coupons. Historically, 50% of the coupons have been redeemed for an average invoice of $120. By December, customers used coupons for a total invoice amount of $3,000. 10. On November 1, 2024 Lehigh Jeans started a loyalty program through which qualifying customers can accumulate points and redeem these points for discounts on future purchases. Customers receive 1 point for each dollar spent on qualifying purchases. Redemption of each point reduces the price of one dollar of future purchases by 30% (or 30 cents). Lehigh Jeans estimates a 70% probability that points will be redeemed. By the end of the year $2,000 in sales qualified for this program and 500 points were redeemed as of the end of the year for sales with a retail value of $1,000. 11. On Oct 1, Lehigh Jeans entered into a contract with a retailer to design and manufacture uniforms for the retailer's employees. The contract requires Lehigh Jeans to design and to manufacture and deliver 300 uniforms by Nov 1 . The cost of each uniform is $30 and the costs incurred to design the jeans are $300 (record as wages expense and payable). The retailer promises to pay $12,000 when the uniforms are delivered and an additional consideration of $2,500 on March 15, 2025 if the uniforms are still in good shape (color does not fade, and so on). If the uniforms are not in good condition by March 15 , Lehigh will refund 1,500 . Lehigh Jean offers the designing service separately from manufacturing and usually charges $1,000 for this service. The stand-alone value of the uniforms is $45. In October, Lehigh Jeans estimates a 70% chance they will receive the bonus in March and recorded the variable consideration based on the expected value. However, internal auditors discovered an email from the retailer in December which detailed a number of quality issues with the uniforms. Based on this email, the internal auditors estimate a 40% chance that the bonus will be received. PART B: The internal audit department discovered the following recorded items that may need correction: 12. On March 1 Lehigh sold merchandise to a customer in exchange for a $5,000, two-year, noninterest-bearing note when an equivalent loan would carry 10% interest. Lehigh recorded $5,000 in sales revenue for this transaction. 13. On December 15 Meta retail placed an order for 100 pairs of Jeans and provided payment on the same date. Meta expects to have sufficient shelf space in its warehouse on Jan 5 and requests that the jeans not be delivered prior to that date. By the end of the year the jeans have not be shipped. Lehigh recognized revenue for this sale on Dec 15. 14. During 2024 Lehigh Jeans placed jeans with a retail value of $10,000 on consignment with Lorelai Inc. and recorded this entire amount as revenue. As of Dec 31, Lorelai Inc. sold jeans with a retail value of $6,000 to end customers. Requirement 1. Provide the journal entries for items in Part A. Do not forget about the related COGS and inventory entries. 2. Provide the Journal entries for items in Part B (both as they were incorrectly recorded and the correct journal entries)