Question 5.1(Total: 20 marks; 2 marks per line)

Healthy Farms Company is testing a number of new agricultural seeds which it they have recently harvested. To generate interest, the company has decided to grant five of its largest customers the unconditional right to return these products if not fully satisfied. The right of return extends for 4 months. Healthy Farms sells these seeds on account for $1.5 million on April 2, 2020. The cost of these seeds were $800,000.Customers are required to pay the full amount due by June 15, 2020. In addition, Healthy Farms is a public company and as a result follows IFRS.

Required

1.Prepare the journal entry for Healthy Farms at April 2, 2020, assuming Healthy Farms estimates returns of 20% based on prior experience.

2.Assume that one customer returns the seeds on July 1, 2020. Prepare the journal entry to record this transaction, assuming this customer purchased $100,000 of seeds from Healthy Farms.

Question 5.2(Total: 12 marks; -2 marks per line)

Red Fish Corporation shipped $20,000 of merchandise on consignment to Blue Fish Corporation. Red Fish paid freight costs of $2,000. Blue Fish paid $500 for local advertising, which is reimbursable from Red Fish. By year end, 60% of the merchandise had been sold for $21,500. Blue Fish notified Red Fish, retained a 10% commission, and remitted the cash due to Red Fish.

Required

1.Prepare Red Fish's journal entry when cash is received.