FRXtol Co BPP Adj 1

Hi. The question clearly states that it is Xtol which is the agent: "Xtol, acting as agent, is entitled to a commission of 10% of the selling price of these goods." So Xtol could only record an income amount equal to 10% of the sale made on behalf of Francais. So, when the cash of $20m was received, Xtol could only record commission as its other income while the remaining amount would be a liability (to be transferred to Francais). Following entries should have been made: Dr Cash $20m Cr Other income $2m Cr Trade payable (Francais) $18m And when cash was eventually transferred to Francais, the entry should have been Dr Trade payable (Francais) $xx Cr Cash $xx Instead, Xtol recorded the full amount as its own revenue, i.e. Dr Cash $20m Cr Revenue $20m and when $15m was remitted to Francais, this was recorded as Cost of Sales i.e. Dr Cost of Sales $15m Cr Cash $15m In summary: revenue is overstated by $20m Cost of Sales is overstated by $15m No entry is made for either Commission income or Trade payable (Francais). I hope you can do the rest of the answer yourself.