A- Waterway Company sells merchandise on account for $7100 to Carla Vista Compan

Question

A- Waterway Company sells merchandise on account for $7100 to Carla Vista Company with credit terms of 2/10, n/30. Carla Vista Company returns $1800 of merchandise that was damaged, along with a check to settle the account within the discount period. What is the amount of the check? $6994 $5194 $6958 $5300

B-Waterway Company purchased a truck from Pharoah Corp. by issuing a 6-month, 12% note payable for $118500 on November 1. On December 31, the accrued expense adjusting entry is

Interest Expense 14220        Interest Payable 14220

Explanation / Answer

A.

The correct answer is $ 5,194

B.

The correct answer is :

Note :

Time = November 1 to December 31

= 2 Months

Interest Expense = Amount * rate of interest * time / total months in a year

= $ 118,500 * 12% * 2/ 12

= $ 2,370

Since Interest expense is an expense it is recorded and hence is debited.

Further it is payable and hence a liability is created and hence the Interest Payable account is credited.

Sold Merchandise 7,100 Less: returns 1,800 Net Sales 5,300 Less :Discount ( net Sales *2%) 106 Amount of Check 5,194

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