Ellis Co. sold merchandise to Rather Co. on account, $7,150, terms 2/15, n/30. The cost of merchandise sold is $4,290. Ellis Co. issued a credit memo for $850 for merchandise returned and later received the amount due within the discount period. The cost of the merchandise returned was $510.
Journalize Ellis Co.'s entry for the payment of the amount due. For a compound transaction, if an amount box does not require an entry, leave it blank.
Journalize Rather Co.'s entry for payment of the amount due. If an amount box does not require an entry, leave it blank.
To journalize Ellis Co.'s entry for the payment of the amount due, we need to take into account the terms of the sale and the merchandise returned.
Step 1: Calculate the net amount due by deducting the return and any applicable discounts from the original amount owed.
Net amount due = Amount owed - Return - Discount
Step 2: Determine if the payment was made within the discount period.
If the payment was made within the discount period, the customer is entitled to a discount. The discount can be calculated using the discount rate provided in the terms of the sale.
Step 3: Journalize the entry.
Here's how to complete each step:
Step 1: Calculate the net amount due.
Amount owed = $7,150
Return = $850
Discount = ($7,150 - $850) * 2% = $123
Net amount due = $7,150 - $850 - $123 = $6,177
Step 2: Determine if the payment was made within the discount period.
Since it is stated that the payment was made within the discount period, we can apply the discount.
Step 3: Journalize the entry.
Ellis Co.'s entry for the payment of the amount due would be:
Date | Account Titles and Explanation | Debit | Credit
__________|___________________________________|_________|_________
| | |
[Date] | Accounts Receivable - Rather Co. | | $6,177
| | |
| Sales Discounts | $123 |
| | |
| Cash | $6,054 |
| | |
Note: The Sales Discounts account is credited with the amount of the discount given to the customer.
Now, let's move on to Rather Co.'s entry for the payment of the amount due.
Since Rather Co. is the customer paying Ellis Co., the entry for Rather Co. would be:
Date | Account Titles and Explanation | Debit | Credit
__________|__________________________________|_________|_________
| | |
[Date] | Accounts Payable - Ellis Co. | $6,054 |
| | |
| Cash | | $6,054 |
| | |
In this case, Rather Co. would debit the Accounts Payable account to decrease the amount it owes to Ellis Co., and credit the Cash account to show the payment made.
Note: Make sure to replace [Date] with the actual date of the transaction.