Question

2) Accounts Receivable Transactions (7 marks) Megacup Company sells beverage supplies. The company has a return policy of 10 days from the date of sale and uses the perpetual inventory system. The following transactions occurred during the month of November Nov. 4 Sold merchandise for S 800 on account to Java Joe terms 2/10, n/30, The original cost of the merchandise to MegaCup was $ 300. 8 Java Joe returned goods with a selling price of $ 100 and a cost of $ 38. The goods are restored to inventory. 14 Received the correct payment from Java Joe. Instructions Prepare journal entries to record the transactions for Moca Capa Company

Answer 1

Terms of 2/10, net 30 means that Java Joe, will get 2 % discount if it pays the invoice within 10 days of the invoice date. So, if it pays the invoice on or before 14th November, then it will get 10% discount. Java Joe paid the invoice amount on 14th November, so it qualifies for the discount. Total payment made by Java Joe will be:

Total amount due on 14th November = Sales - Sales returns

Total amount due on 14th November = $800 - $100 = $700

Total payment made on 14th November = $700 - (2% * $700)

Total payment made on 14th November = $700 - $14 = $686

Required journal entries are:

Date	Description	Debit	Credit
November 4	Accounts receivable	800
	Cost of the goods sold	300
	Sales revenue		800
	Inventory		800
	(for merchandise sold with terms 2/10, net 30)
November 8	Sales returns and allowances	100
	Inventory	38
	Accounts receivable		100
	Cost of the goods sold		38
	(for merchandise returned)
November 14	Cash	686
	Discount	14
	Accounts receivable		700
	(for payment received after discount)