Question

P & G Auto Parts sells parts to AAA Car Repair during 2018. P&G offers rebates of 2% on purchases up to $60,000 and 3% on purchases above $60,000 if the customer’s purchases for the year exceed $200,000. In the past, AAA normally purchases $300,000 in parts during a calendar year. On March 25, 2018, AAA Car Repair purchased $74,000 of parts. The journal entry to record the purchase includes a:
a. debit to Accounts Receivable for $74,000.


b. debit to Accounts Receivable for $72,800.


c. credit to Sales Revenue for $72,380.


d. credit to Sales Revenue for $72,800.

Answer 1

Answer:

c. credit to Sales Revenue for $72,380.

Explanation:

Since AAA Car Repair's total purchases exceed $200,000 for the year, they are eligible for the 3% rebate on purchases above $60,000. Only the fraction of the purchase over $60,000 should get the 3% rebate, the first $60,000 get the 2% rate.

Therefore, the total sales amount recorded by P & G Auto Parts by selling $74,000 of parts to AAA is:

$S=(1-0.02)*\ 60 + (1-0.03)*(\ 74-\ 60)\\S=\ 72.38$

There should be a credit to Sales Revenue for $72,380.