Question

Part A Space Limited signed a sales agreement with a customer on 1 May 20×1, the terms of which are as follows: x Space Limited will supply 32000 widgets to the customer; x The contract price is C1 per widget; x The total contract price is due and payable by the customer on 18 May 20×1. The customer requested a 10% discount when signing the contract. However, the sales representative who was assisting the customer did not have the necessary authority to grant the discount but managed to convince the customer to sign the contract anyway and assured him that he would speak to his manager to try to secure the requested discount. At contract inception, it was considered likely that the customer would be granted the discount. The batch of widgets was delivered to the customer on 31 May 20×1 and the customer settled his balance on 4 July 20×1. The contract is cancellable. Required: Prepare all journals relevant to the information provided above assuming that on 4 July 20×1: a) A decision was made to grant the discount. b) A decision was made to not grant the discount. Ignore loss allowances. Part B Use the same information as that provided in part A with the exception that the contract is non-cancellable. Required: Prepare all journals relevant to the information provided above assuming that on 4 July 20×1 : a) A decision was made to grant the discount. b) A decision was made to not grant the discount. Ignore loss allowances.

Answer 1

Journal entries for a sales transaction vary based on whether a discount is granted and whether the contract is cancellable or non-cancellable. If a discount is granted, a sales discount account is debited, and if not, only the customer and sales revenue accounts are impacted.

Step-by-step explanation:

The student is seeking assistance with journal entries for transactions under different conditions. These conditions include whether a sales discount is granted or not, and the impact of the contract being cancellable or non-cancellable on the journal entries.

Part A: Cancellable Contract -

a) Decision made to grant the discount: -

• Dr. Customers (32,000 * 0.90) C28,800
• Dr. Sales Discounts (32,000 * 0.10) C3,200
• Cr. Sales Revenue (32,000) C32,000

b) Decision made to not grant the discount: -

• Dr. Customers C32,000
• Cr. Sales Revenue C32,000

Part B: Non-Cancellable Contract -

Journal entries will be the same as Part A, since the decision regarding the discount is made at the time of payment, making the non-cancellable nature irrelevant in this case.