Great Company sells raw materials to Okay Manufacturing, Inc. during 2014. Great
ID: 2456360 • Letter: G
Question
Great Company sells raw materials to Okay Manufacturing, Inc. during 2014. Great Company offers rebates of 2% on purchases up to $30,000 and 3% on purchases above $30,000 if the customer’s purchases for the year exceed $100,000.
In the past, Okay Manufacturing has normally purchased $150,000 in raw materials during a calendar year.
On March 25, 2014, Okay Manufacturing purchased $37,000 of raw materials.
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a. Prepare the journal entry, in T-accounts, for the sale by Great Company.
b. Prepare the journal entry, in T-accounts, for the purchase by Okay Company.
Explanation / Answer
Rebates of 2% on purchases up to $30,000
3% on purchases above $30,000 if the customer’s purchases for the year exceed $100,000.
On March 25, 2014, Okay Manufacturing purchased = $37,000 of raw materials. therefore total purchase (150000+37000 = 187000 exceeds 100000 ) during the year,
Rebate = 37000 * 3% = 1110
Journal entry, in T-accounts, for the sale by Great Company
Okay Company Dr. 35890
Rebate Dr. 1110
To sales 37000
Journal entry, in T-accounts, for the purchase by Okay Company
Purchase Dr. 37000
To rebate 1110
To Great company 35890
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