Question

Required information Problem 5-2B Record transactions related to credit sales and contra revenues (LO5-1, 5-2) (The following information applies to the questions displayed below.) Data Recovery Services (DRS) specializes in data recovery from crashed hard drives. The price charged varies based on the extent of damage and the amount of data being recovered. DRS offers a 15% discount to students and faculty at educational institutions. Consider the following transactions during the month of June. June 10 Rashid's hard drive crashes and he sends it to DRS. June 12 After initial evaluation, DRS e-mails Rashid to let him know that full data recovery will cost $1,900. June 13 Rashid informs DRS that he would like them to recover the data and that he is a student at UCLA, qualifying him for a 15% educational discount and reducing the cost by $285 ( = $1,900 X 15%). June 16 DRS performs the work and claims to be successful in recovering all data. DRS asks Rashid to pay within 30 days of today's date, offering a 4% discount for payment within 10 days. June 19 When Rashid receives the hard drive, he notices that DRS did not successfully recover all data. Approximately 20% of the data has not been recovered and he informs DRS. June 20 DRS reduces the amount Rashid owes by 208. June 30 Rashid pays the amount owed.

Answer 1

Solution:

Requirement 1:

No.	Date	General Journal	Debit	Credit
1	June 10	No Journal Entry Required
2	June 12	No Journal Entry Required
3	June 13	No Journal Entry Required
4	June 16	Accounts Receivable[1900-285]	$        1,615
		Service Revenue		$        1,615
		( To record service revenue)
5	June 19	No Journal Entry Required
6	June 20	Sales/Service Allowance[1615*20/100]	$           323
		Accounts Receivable		$           323
		[To record sales allowance]
7	June 30	Cash	$        1,292
		Accounts Receivable		$        1,292
		[ To record collection of account receivable]

Requirement 2:

DATE RECOVERY SERVICES
Partial Income Statement
Total service revenues	$        1,900
Less:
Trade Discount[1900*15/100]	$         (285)
Sales Allowance[1615*20/100]	$         (323)
Net service revenues	$        1,292

Requirement 3:

Net service revenues

$ 1,240.32

Working:

DATE RECOVERY SERVICES
Partial Income Statement
Total service revenues	$ 1,900.00
Less:
Trade Discount[1900*15/100]	$   (285.00)
Sales Allowance[1615*20/100]	$   (323.00)
Sales Discount[(1900-285-323)*4/100]	$     (51.68)
Net service revenues	$ 1,240.32

Notes:

1) No entry is required for trade discount.

2) If payment is made before June 25th, Data Recovery Services will provide 4% sales discount.