The following transactions are for Oriole Company.

1. On December 3, Oriole Company sold $492,200 of merchandise to Cullumber Co., terms 2/10, n/30. The cost of the merchandise sold was $325,100.

2. On December 8, Cullumber Co. was granted an allowance of $22,900 for merchandise purchased on December 3.

3. On December 13, Oriole Company received the balance due from Cullumber Co.

(a) Prepare the journal entries to record these transactions on the books of Oriole Company. Oriole Company uses a perpetual inventory system. (If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts. Credit account titles are automatically indented when amount is entered. Do not indent manually.)

Question

Business

Guest

28 January, 02:17

The following transactions are for Oriole Company.

1. On December 3, Oriole Company sold $492,200 of merchandise to Cullumber Co., terms 2/10, n/30. The cost of the merchandise sold was $325,100.

2. On December 8, Cullumber Co. was granted an allowance of $22,900 for merchandise purchased on December 3.

3. On December 13, Oriole Company received the balance due from Cullumber Co.

(a) Prepare the journal entries to record these transactions on the books of Oriole Company. Oriole Company uses a perpetual inventory system. (If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts. Credit account titles are automatically indented when amount is entered. Do not indent manually.)

+4

Answers (1)

Know the Answer?

Oreo · Answer 1

Journal 1;

Account Receivable - Cullumber Co. $ 492200 (debit), Revenue $ 492200

Journal 2;

Cost of Sales $325000 (debit), Merchandise $325000

Journal 3

Discount Allowed $22900 (debit), Accounts Receivable - Cullumber Co $22900 (credit)

Journal 4

Bank or Cash $469300 (debit), Account Receivable - Cullumber Co (credit)

Explanation:

Journal 1

Revenue is being recognized on sale of Merchandise to Cullumber Co. Since this is not a credit transaction (the merchandise was sold on credit 2/10, n/30), we recognize an Asset in the Account Receivable - Cullumber for future economic benefits expected to flow to Oriole.

Journal 2

Company uses perpetual inventory system. Which means cost of merchandise is recorded at each sale and not after a certain period (periodic). Thus cost of merchandise is matched to the revenue. Note that Merchandise Account is decreasing (Credit) while the Cost od Sale is increasing (Debit)

Journal 3

The Asset element in the Account Receivable - Cullumber is decreasing due to allowance granted to them. Therefore Culumber is credited. An expense account - Discount Allowed has been created to reflect a decrease in future economic benefit due to grant of the allowance.

Journal 4

The Recognition of Payment through Bank or Cash. Asset of Cash or Bank are increasing as a result of the payment while assets of Accounts Receivable are decreasing due to Cullumber Co. settling their debt. The settled amount is net of allowance granted to them $469300 (492200-22900)