Sales-Related Transactions After the amount due on a sale of $35,700, terms 2/10

Question

Sales-Related Transactions

After the amount due on a sale of $35,700, terms 2/10, n/eom, is received from a customer within the discount period, the seller consents to the return of the entire shipment. The cost of the merchandise returned was $21,420.

a. What is the amount of the refund owed to the customer?

b. Journalize the entries made by the seller to record (a) the refund and (b) the return of merchandise. For a compound transaction, if an amount box does not require an entry, leave it blank.

Explanation / Answer

Part a)

Since, the customer must have availed the discount of 2% as the payment was made within the discount period of 10 days. Total amount due to the customer as refund would be calculated as follows:

Amount of Refund = Total Sales Value - Discount Percentage*Total Sales Value

Using the information provided in the question, we get,

Amount of Refund = 35,700 - 2%*35,700 = $34,986

___________

Part b)

a)

The journal entry to record the refund would involve a debit to sales returns and allowances with the net amount of sales (after discount), a debit to sales discounts with the value of discount allowed and a credit to cash with the total amount of cash paid back to the customer. The journal entry is as follows:

___________

b)

The return of goods by the customer will result in an increase in the inventory with the cost of merchandize. The journal entry would a debit to inventory and a credit to cost of goods sold. The journal entry is given below:

Account Titles Debit Credit Sales Returns and Allowances (35,700 – 714) $34,986 Sales Discounts (35,700*2%) $714 Cash $34,986

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