/*! This file is auto-generated */ .wp-block-button__link{color:#fff;background-color:#32373c;border-radius:9999px;box-shadow:none;text-decoration:none;padding:calc(.667em + 2px) calc(1.333em + 2px);font-size:1.125em}.wp-block-file__button{background:#32373c;color:#fff;text-decoration:none} Problem 26 Summit Co., a furniture wholesal... [FREE SOLUTION] | 91影视

91影视

Log out

Learning Materials

Features

Discover

Chapter 6: Problem 26

Summit Co., a furniture wholesaler, sells merchandise to Bitone Co. on account, \(\$ 23,400\), terms \(2 / 10, \mathrm{n} / 30\). The cost of the merchandise sold is \(\$ 14,000\). Summit Co. issues a credit memo for \(\$ 4,400\) for merchandise returned and subsequently receives the amount due within the discount period. The cost of the merchandise returned is \(\$ 2,600\). Journalize Summit Co.'s entries for (a) the sale, including the cost of the merchandise sold, (b) the credit memo, including the cost of the returned merchandise, and (c) the receipt of the check for the amount due from Bitone Co.

Short Answer

Expert verified
Summit Co. makes entries to account for sales, returns, and payment, reflecting an adapted accounts receivable and cash outcomes.

Step by step solution

01

Record the Sale on Account

When merchandise is sold on account, record the accounts receivable and sales revenue. For Summit Co., the journal entry on the sale date would be:Date: [Date of Sale]- Debit Accounts Receivable: \( 23,400 \)- Credit Sales Revenue: \( 23,400 \)This records the sale to Bitone Co. on account.
02

Record the Cost of Goods Sold

Simultaneously, record the cost of goods sold by recognizing the expense and reducing inventory:Date: [Date of Sale]- Debit Cost of Goods Sold: \( 14,000 \)- Credit Inventory: \( 14,000 \)This entry reflects the reduction in inventory due to the sale.
03

Record the Credit Memo for Return

Bitone Co. returns merchandise, so Summit Co. issues a credit memo, reducing the amount owed:Date: [Date of Return]- Debit Sales Returns and Allowances: \( 4,400 \)- Credit Accounts Receivable: \( 4,400 \)This credit memo adjusts the receivable balance and increases sales returns.
04

Reverse the Cost of Returned Goods

Reflect the reduction in the cost of goods sold and inventory for the returned merchandise:Date: [Date of Return]- Debit Inventory: \( 2,600 \)- Credit Cost of Goods Sold: \( 2,600 \)This entry restores the inventory and adjusts the cost of goods sold for the return.
05

Record Receipt of Payment with Discount

Summit Co. receives payment within the discount period, so record the cash receipt and any sales discount:Net sales after return: \( 23,400 - 4,400 = 19,000 \)Discount available: 2% of \( 19,000 \) = \( 380 \)Cash received: \( 19,000 - 380 = 18,620 \)Date: [Date of Payment]- Debit Cash: \( 18,620 \)- Debit Sales Discounts: \( 380 \)- Credit Accounts Receivable: \( 19,000 \)This entry accounts for the discounted payment received within the discount period.

Unlock Step-by-Step Solutions & Ace Your Exams!

  • Full Textbook Solutions

    Get detailed explanations and key concepts

  • Unlimited Al creation

    Al flashcards, explanations, exams and more...

  • Ads-free access

    To over 500 millions flashcards

  • Money-back guarantee

    We refund you if you fail your exam.

Over 30 million students worldwide already upgrade their learning with 91影视!

Key Concepts

These are the key concepts you need to understand to accurately answer the question.

Accounts Receivable
When a business sells goods on credit, the amount owed by the customer is recorded in Accounts Receivable. This is an asset account, reflecting the company's right to receive cash in the future. In our exercise with Summit Co., they recorded a sale to Bitone Co. amounting to $23,400, which increases their Accounts Receivable by the same amount. This entry reflects the open balance that Bitone Co. owes to Summit Co., acknowledging the transaction and expecting payment within the credit terms of the sale.
Sales Revenue
Sales revenue is a crucial component of a company's financial statements, representing the income generated from normal business operations. It is recorded in the accounting system as a credit, indicating an increase in equity. In Summit Co.'s transaction with Bitone Co., the sales revenue was recorded at $23,400. This entry is not only fundamental in showing potential growth but also plays an essential role in income statements, reflecting the business's capacity to earn from its core activities.
Cost of Goods Sold
The cost of goods sold (COGS) represents the direct costs attributable to the production of the goods sold in a company. This is a critical measure as it directly affects the gross profit of the business. For Summit Co., when they sold merchandise worth $23,400, they recorded a COGS of $14,000. This means the company spent $14,000 to procure or manufacture the inventory that was sold to Bitone Co. It's recorded as an expense because it decreases the company鈥檚 assets (inventory) by this amount.
Inventory Management
Effective inventory management keeps a business running smoothly by maintaining the right balance of stock levels. Proper recording ensures that what is available in the books matches what is physically available in the warehouse. In our scenario, Summit Co. had to adjust both the Inventory and COGS accounts when Bitone Co. returned merchandise valued at $2,600. This adjustment not only updates the company's records to match the physical count but also ensures accurate financial reporting.
Sales Discount
Sales discounts are reductions in the amount due from customers as an incentive for early payment. In most cases, terms such as 2/10, n/30 are used, meaning a 2% discount is available if payment is made within 10 days of the invoice date. Summit Co.'s application of this discount resulted in a deduction of $380 from the amount due, reducing Bitone Co.'s payment obligation to $18,620. Sales discounts are recorded as a contra-revenue account and are essential for managing cash flow efficiently, promoting prompt payments from customers.

One App. One Place for Learning.

All the tools & learning materials you need for study success - in one app.

Get started for free

Most popular questions from this chapter

Newgen Company purchased merchandise on account from a supplier for \(\$ 9,000\), terms \(2 / 10, \mathrm{n} / 30\). Newgen Company returned \(\$ 1,200\) of the merchandise and received full credit. a. If Newgen Company pays the invoice within the discount period, what is the amount of cash required for the payment? b. Under a perpetual inventory system, what account is credited by Newgen Company to record the return?

Versailles Co., a women's clothing store, purchased \(\$ 18,000\) of merchandise from a supplier on account, terms FOB destination, \(2 / 10, \mathrm{n} / 30\). Versailles Co. returned \(\$ 3,000\) of the merchandise, receiving a credit memo, and then paid the amount due within the discount period. Journalize Versailles Co.'s entries to record (a) the purchase, (b) the merchandise return, and (c) the payment.

After the amount due on a sale of \(\$ 25,000\), terms \(1 / 10, \mathrm{n}\) /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 \(\$ 15,000\). (a) What is the amount of the refund owed to the customer? (b) Journalize the entries made by the seller to record the return and the refund.

Iverson Tile Co.'s perpetual inventory records indicate that \(\$ 675,150\) of merchandise should be on hand on December 31,2010 . The physical inventory indicates that \(\$ 649,780\) of merchandise is actually on hand. Journalize the adjusting entry for the inventory shrinkage for Iverson Tile Co. for the year ended December 31, \(2010 .\)

During the current year, merchandise is sold for \(\$ 795,000\). The cost of the merchandise sold is \(\$ 477,000\). a. What is the amount of the gross profit? b. Compute the gross profit percentage (gross profit divided by sales). c. Will the income statement necessarily report a net income? Explain.
See all solutions

Recommended explanations on Math Textbooks

Theoretical and Mathematical Physics

Read Explanation

Calculus

Read Explanation

Mechanics Maths

Read Explanation

Applied Mathematics

Read Explanation

Pure Maths

Read Explanation

Statistics

Read Explanation
View all explanations

What do you think about this solution?

We value your feedback to improve our textbook solutions.

Study anywhere. Anytime. Across all devices.