Glick Corporation offers a 10% volume discount to customers who purchase more th

Question

Glick Corporation offers a 10% volume discount to customers who purchase more than 10,000 units of its yoga mats in a calendar year. The volume discount applies to all units purchased in the year, not just the units above 10,000. Once a customer exceeds 10,000 units, it receives a credit for 10% of the cost of its first 10,000 units and it is subsequently billed only 90% of the list price for units purchased for the remainder of the year.

In the first quarter of 2018, Glick sold 1,200 yoga mats to Newman Corporation at the regular price of $30 per unit. At the end of the first quarter, Glick believed it was very unlikely Newman’s purchases would reach 10,000 units for the year.

Due to an expansion of its business, Newman increased its purchases to 4,500 yoga mats in the second quarter of 2018. At the end of that quarter, Glick revised its estimate of Newman’s full-year purchases and believed that it was highly likely Newman’s purchases for the year would exceed 10,000 units.

Required:

1. What is the journal entry to record Glick’s revenue in the first quarter of 2018?

2. What is the journal entry to record Glick’s revenue in the second quarter of 2018?

Explanation / Answer

1. Newman Corporation a/c Dr 36,000

To Sales a/c Cr 36,000

(Being 1200 yoga mats sold to Newman corporation @ $30)

2. Newman Corporation a/c Dr 135,000

To Sales a/c Cr 135,000

(Being 4500 yoga mats sold to Newman corporation @ 30)

Profit or loss a/c Dr 17,100

To provision for discount on debtors account a/c Cr 17,100

(Being discount (10% of (36,000 + 135,000))estimated for 2 quarters on newman corporation sales)

As Glick believed it was very unlikely Newman’s purchases would reach 10,000 units for the year in first quarted it realised 100% sales.

But as the sales volume to newman increased in 2nd quarter Glick reviseed its estimation and recognised only 90% sales by charging 10% of sales to provision for discount which may be allowed in future (if sales > 10,000 units). Provision is calculated for 1st quarter sales also as the discount applies to all units purchased in the year, not just the units above 10,000.

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