Question

Question 2 Part A and B

A. Oswego Clay Pipe Company sold $46,000 of pipe to Southeast Water District #45 on April 12 of the current year with terms 3/15, n/60. Oswego uses the gross method of accounting for cash discounts.

What entry would Oswego make on April 12?

Multiple Choice

• Accounts receivable	46,000
  Sales		46,000

• Accounts receivable	44,620
  Sales discounts	1,380
  Sales		46,000

• Accounts receivable	44,620
  Sales		44,620

• Accounts receivable	46,000
  Sales		44,620
  Sales discounts		1,380

B. False Value Hardware began 2018 with a credit balance of $31,100 in the allowance for sales returns account. Sales and cash collections from customers during the year were $600,000 and $560,000, respectively. False Value estimates that 5% of all sales will be returned. During 2018, customers returned merchandise for credit of $25,000 to their accounts.

What is the balance in the allowance for sales returns account at the end of 2018?

Multiple Choice

• $30,000.

• $36,100.

• $6,100.

• $55,000.

Answer 1

Answer

1)Explanation:

As company mentioned that it has been using gross method of accounting for cash discounts .This means that company is assumed that customer will not take any cash discount advantage .

So sales are recorded at gross amount

Entry

Account recevable  a/c ...................dr $46,000

To sales a/c ...................cr $46,000

So option a is correct.

2)Explanation

Allowance for sales returns

opening cr bal =31,100

(+)5% of 6,00,00=30,000

Total = $61,100(31100+30000)

(-)returned =$25000

Net =36,100(61,100-25000)

So option b is correct.