Question

The following information pertains to Marin Solar Panels, Inc. July 1 Sold $126,000 of solar panels to Cullumber Company with terms 4/15, n/30. Marin uses the gross method to record cash discounts. Marin estimates allowances of $1,500 will be honored on this sale. 12 Sold $82,000 of solar panels to Bramble Corp. with terms of 5/10, n/60. Marin expects no allowances related to this sale. 18 Bramble Corp. paid Marin for its July 12 purchase. 20 Cullumber calls to indicate that the panels purchased on July 1 work well, but the color is not quite right. Marin grants a credit of $2,700 as compensation. 29 Cullumber Company paid Marin for its July 1 purchase. 31 Marin expects allowances of $6,540 to be grated in the future related to solar panel sales in July. Prepare the necessary journal entries for Marin.

Answer 1

Answer:

Date: July 1

Debit: Cullumber Company $126,000

Credit: Sales Revenue $126,000

To record sales on account, in terms of Gross method.

Date: July 12

Debit: Bramble Corp. $82,000

Credit: Sales Revenue $82,000

To record sales on account to Bramble Corp.

Date: July 18

Debit: Cash $77,900

Debit: Discount Allowed $4,100

Credit: Bramble Corp. $82,000

To record cash received from Bramble Corp. within 10 days so allowed discount of 5%.

Date: July 20

Debit: Discount Allowed $2,700

Credit: Cullumber Company $2,700

To record discount allowed to Cullumber Company

Date: July 29

Debit: Cash $123,300

Credit: Cullumber Company $123,300

To record Cash received from Cullumber Company

Explanation:

July 1: 4/15, n/30 means that if the payment is made within 15 days then a discount of 4% will be given on sales amount otherwise whole payment needs to be made within 30 days. The Gross Method means that whatever amount is written on invoice will be journalized. So the allowance of $1,500 will not be recorded in this journal entry as it is merely estimation and not really honored by vendor yet.

July 12: 5/10, n/60 means that if the payment is made within 10 days of purchase the buyer can avail 10% discount otherwise full payment in 60 days.

July 18: Since the payment is made within 10 days of purchase. Hence the 10% of discount would be given to Bramble Corp.

Discount Allowed = $82,000 x 5% = $4,100

July 20: Credit of $2,700 means that Cullumber will pay $2,700 less of the amount it owes to Marin.

July 29: Cullumber could have availed the discount if made the payment within 15 days as per terms but as made within 30 days so have to make the full payment. Except that of Discount allowed in terms of compensation due to wrong color provided by Marin of $2,700.

July 31: Since the Marin expectations have not been realized yet so no entry required at this time.