Question

Use the data presented in P6-1 , which were selected from the records of Sykes Company for the year ended December 31, current year.
Required:
(b) Show how the accounts related to the preceding sale and collection activities should be reported on the current year income statement. (Treat sales discounts as a contra-revenue.)

Answer 1

The journal entries for these transactions are  

Transaction Sales Revenue Sales Discounts (taken) Sales Returns and Allowances Bad Debt Expense

a. $2,60,000      

b. $10,500      

c. $31,000      

d.     $700  

e. $29,000      

f.   $392    

g.   $3,960    

h.   $1,240    

i. $25,500      

j.   -$196 $4,900  

k.        

l.        

m.       $904

Total $3,56,000 $5,396 $5,600 $904

Working:

d. 1 unit returned by R. Smith = 1 x $700 = $700

f. Discount: = $10,500 - $700 = $9,800 x 4% = $392

g. Discount = $99,000 x 4% = $3,960

h. Discount = $31,000 x 4% = $1,240

j. 7 units returned by k. Miller = 7 x $700 = $4,900

  Discount reversal = $4900 x 4% = $196

m. Bad debt Expenses:

    Total Credit sales = $10,500 + $31,000 + $29,000 + $25,500 = $96,000

    Total Sales Return = $700 + $4,900 =  $5,600

     Bad debt Expense = $96,000 - $5,600 = $90,400 x 1% = $904

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