Question

Sacajawea Mercantile Co. uses the gross method for recording sales discounts. The following data were extracted from the accounting records of Sacajawea Mercantile Co. for the year ended June 30, 20Y4: Unadjusted Balances June 30, 20Y4 Account Balances* Sales$10,000,000 Accounts Receivable850,000 Allowance for Sales Discounts400 Adjustment Data Estimated sales discounts related to sales for the current fiscal year that will taken in the next fiscal year ending June 30, 20Y5.$ 7,000 * Assume all normal balances Assume that Mark Bishop pays his June 30, 20Y4, account receivable of $1,500 on July 6, 20Y4, and takes a 2% sales discount. Illustrate the effects of the payment on account from Mark Bishop on the accounts and financial statements of Sacajawea Mercantile Co.

Answer 1

Answer:

Sacajawea Mercantile Co.

Effect of the payment:

1. The current assets will increase (Cash) and decrease (Accounts receivable) by $1,470 and $1,500 respectively.

2. The retained earnings will reduce by $40.

Account balances will now be:

Accounts Receivable $848,500 (850,000 - 1,500)

Allowance for Sales Discounts $440 (400 + 40)

Explanation:

a) Data and Calculations:

Sacajawea Mercantile Co.

Unadjusted Balances June 30, 20Y4 Account Balances*

Sales        $10,000,000

Accounts Receivable 850,000

Allowance for Sales Discounts 400

Estimated sales discounts related to sales for the current fiscal year that will taken in the next fiscal year ending June 30, 20Y5 = $ 7,000

Analysis:

July 6, 20Y4 Cash $1,470  Cash Discounts $30 Accounts receivable (Mark Bishop) $1,500

2% sales discount of $1,500 = $30  

Cash Received = $1,470