Ask Question
2 December, 19:05

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

+4
Answers (1)
  1. 2 December, 19:26
    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.
Know the Answer?
Not Sure About the Answer?
Find an answer to your question 👍 “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 ...” in 📗 Business if the answers seem to be not correct or there’s no answer. Try a smart search to find answers to similar questions.
Search for Other Answers