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22 June, 03:17

On February 3, Smart Company sold merchandise in the amount of $4,200 to Truman Company, with credit terms of 1/10, n/30. The cost of the items sold is $2,900. Smart uses the perpetual inventory system. Truman pays the invoice on February 8, and takes the appropriate discount.

The journal entry that Smart makes on February 8 is:

a.

Cash 2,900

Accounts receivable 2,900

b.

Cash 4,200

Accounts receivable

4,200

c.

Cash 4,120

Sales discounts 80

Accounts receivable 4,200

d.

Cash 2,820

Accounts receivable 2,820

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Answers (1)
  1. 22 June, 06:57
    0
    Answer: Refer to Explanation.

    Explanation:

    There must be an error in the Multiple Choice options because the answer does not appear there.

    Nevertheless here is the working.

    The Journal entry that Smart makes on February 8 is as follows:

    First, we will notice the presence of the credit term, 1/10, n/30. This means 1% discount if paid within 10days, otherwise, the total amount is due within 30 days.

    Truman paid within the discount period and thus got the discount of 1%.

    Calculating the adjusted figure to the discount would therefore be,

    = 4,200 * (1 - 0.01)

    = $4,158

    The discount would be,

    = $4,200 - $4,158

    = $42

    The Journal Entry will therefore look like,

    Cash 4,158

    Sales discounts 42

    Accounts receivable 4,200

    If you need any clarification do react or comment.
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