Question

Nash's Trading Post, LLC sells merchandise on account for $1200 to Morton Company with credit terms of 2/7, n/30. Morton Company returns $500 of merchandise that was damaged, along with a check to settle the account within the discount period. What entry does Nash's Trading Post, LLC make upon receipt of the check?

Answer 1

The answer is: Nash's Trading Post should record the following entries

• Cr Accounts receivable $1,200
• Dr $686 Cash
• Dr $14 Sales discount
• Dr $500 returned merchandise (damaged)

Step-by-step explanation:

The credit terms of 2/7, n/30 means that if Morton Company pays within seven days, they will get a 2% discount, or they have thirty days to pay the full receipt.

Morton's check should be for

($1,200 - $500) x 0.98% = $700 x 0.98% = $686

Nash's Trading Post should record the following entries

Cr Accounts receivable $1,200

Dr $686 Cash

Dr $14 Sales discount

Dr $500 returned merchandise (damaged)