during 2016 bava corporation sold merchandise for a total of 600000 the cost of merchandise to bava was $450000 bava offers credit terms of 1/10, n/30 to encourage early payment. at year end there are $15000 of sales still eligible for the 1% discount. Bava believes that all of the companies will pay within the discount period to receive the 1% discount assume bava's fiscal year is Dec 3
bava adjusting journal entry will include:
a) a debit to sales discounts for 150
b) a credit to allowance for sales discounts for 1500
c)a debit to sales discounts for 150
d) no adjusting journal entry is required
To determine the correct adjusting journal entry, we need to consider the specific situation described.
According to the given information, Bava Corporation offers credit terms of 1/10, n/30, which means that customers are eligible for a 1% discount if they pay within 10 days. At year-end, there is still $15,000 of sales that are eligible for the 1% discount.
Since Bava Corporation believes that all customers will pay within the discount period to receive the 1% discount, the correct adjusting journal entry would be to recognize the expected amount of sales discounts.
The amount of sales discounts can be calculated by taking the eligible sales amount ($15,000) and applying the discount rate (1%). Therefore, the correct adjusting journal entry would be:
c) A debit to Sales Discounts for $150 (to increase the Sales Discounts account)
c) A credit to Allowance for Sales Discounts for $150 (to decrease the Allowance for Sales Discounts account)
This entry reflects Bava Corporation's expectation that customers will take advantage of the discount and pay the reduced amount.