Question

On January 15, Tundra Co. sold merchandise to customers for cash of $42,000 (cost $28,500). Merchandise costing $10,500 was sold to customers for $15,800 on January 17; terms 2/10, n/30. Sales totaling $296,000 (cost $198,000) were recorded on January 20 to customers using MasterCard, a credit card that charges a 2% fee. On January 25, sales of $72,000 (cost $48,200) were made to debit card customers. The bank charges Tundra a flat fee of 0.5% on all debit card transactions.
Required:
1. Prepare journal entries for each of the transactions described (assume a perpetual inventory system).
2. Identify the advantages and disadvantages of each type of sale: cash sale, credit sale, credit card sale, or debit card sale. Explain why Tundra would likely accept all these types of sales.

Answer 1

1. The Tundra Co's journal entries to record the sales transactions under the perpetual inventory system are as follows:

Journal Entries:

January 15: Debit Cash $42,000

Credit Sales Revenue $42,000

• To record the sale of goods for cash.

Debit Cost of goods sold $28,500

Credit Inventory $28,500

• To record the cost of goods sold.

January 17: Debit Accounts Receivable $15,800

Credit Sales Revenue $15,800

• To record the sale of goods on account, terms 2/10, n.30

Debit Cost of goods sold $10,500

Credit Inventory $10,500

• To record the cost of goods sold.

January 20: Debit Cash (MasterCard) $290,080

Debit MasterCard Expense $5,920

Credit Sales Revenue $296,000

• To record the sale of goods via MasterCard.

Debit Cost of goods sold $198,000

Credit Inventory $198,000

• To record the cost of goods sold.

January 25: Debit Cash $68,400

Debit Bank Charges $3,600

Credit Sales Revenue $72,000

• To record the sale of goods via debit card.

Debit Cost of goods sold $48,200

Credit Inventory $48,200

• To record the cost of goods sold.

2. The identification of the advantages and disadvantages of each sale type is as follows:

a. Cash Sale ensures that Tundra collects cash immediately without facing credit risks from customers.  Tundra has the cash available for operations without resorting to borrowing.  Customers may be discouraged from making purchases if sales are restricted to cash. Tundra may be forced to offer cash discounts, which are substantial when the interest rates are annualized.

b. Credit Sale enables Tundra customers to buy more because of the credit period given.  Credit Sale attracts more customers than Cash Sale.  However, there is the risk of default.  Some customers may become bankrupt during the credit period.  Credit Sale extension to all customers increases the risk of financial fraud by some entities.

c. Credit Card Sale is like a cash sale except that Tundra will pay some expense to the Card issuers on whose platform the sale transaction is conducted.

d. Debit Card Sale is also like Credit Card Sale except that it is offered by financial institutions and not credit card issuers.

e. By accepting all these types of sales, Tundra increases its ability to make sales to various customers since some customers prefer to make transactions through these various types of sales.

Data Analysis:

January 15: Cash $42,000 Sales Revenue $42,000

Cost of goods sold $28,500 Inventory $28,500

January 17: Accounts Receivable $15,800 Sales Revenue $15,800

Cost of goods sold $10,500 Inventory $10,500

terms 2/10, n.30

January 20: Cash (MasterCard) $290,080 MasterCard Expense $5,920 Sales Revenue $296,000

Cost of goods sold $198,000 Inventory $198,000

January 25: Cash $68,400 Bank Charges $3,600 Sales Revenue $72,000

Cost of goods sold $48,200 Inventory $48,200

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