Question

Wildhorse Co. sells merchandise on account for $2800 to Morton Company with credit terms of 2/8, n/30. Morton Company returns $800 of merchandise that was damaged, along with a check to settle the account within the discount period. What entry does Wildhorse Co. make upon receipt of the check

Answer 1

Answer: Cash $1,960

Sales returns and allowances $800

Sales discount $40

Accounts receivable $2,800

Explanation:

Sales = $2,800

Sales returns = $800

Discount rate = 2%

The final amount due will be:

= Sales- Sales returns

= $2,800 - $800

= $2,000

Sales discount = 2% × $2,000 = $40

Cash received will be:

Final amount due - Sales discount

= $2,000 - $40

= $1,960

The journal entry will be:

Debit Cash $1,960

Debit Sales returns and allowances $800

Debit Sales discount $40

Credit Accounts receivable $2,800