Final answer:
To correctly record the sales to Kao Co. on May 31, 2017, Cain Company needs to consider the possibility of a volume discount.
Step-by-step explanation:
Cain Company should correctly record the sales to Kao Co. on May 31, 2017, by considering the possibility of a volume discount. If Kao Co. purchases at least $600,000 of Cain's product during the calendar year, there is a 2% discount. The historical average sales to Kao Co. in the previous two years were $800,000 in the period from June 1 to December 31.
To record the sales to Kao Co. on May 31, 2017, Cain Company should first determine the total sales for the period from June 1 to December 31. Based on the historical average sales of $800,000, they can calculate the actual sales value using a pro-rata calculation. For example, if the sales for that period are estimated to be $1,000,000, then the sales from May 31 would be $1,000,000 * (7/12) = $583,333.33.
If Kao Co. purchases $600,000 or more during the calendar year, then the actual sales value of $583,333.33 would be subject to a 2% volume discount. The discount amount would be $583,333.33 * 2% = $11,666.67. Therefore, the correct record of the sales to Kao Co. on May 31, 2017, would be $583,333.33 - $11,666.67 = $571,666.66.