Question

On March 1, Bates Board Shop sells 300 surfboards to a local lifeguard station at a sales price of $400 per board. The cost to Bates is $140 per board. The terms of the sale are 3/15 n/30, with an invoice date of March 1. Create the journal entries for Bates to recognize the following transactions,

A. the initial sale
B. the subsequent customer payment on March 10

a) A: Debit Accounts Receivable, Credit Sales Revenue; B: Debit Cash, Credit Accounts Receivable
b) A: Debit Cash, Credit Sales Revenue; B: Debit Accounts Receivable, Credit Cash
c) A: Debit Accounts Receivable, Credit Cash; B: Debit Cash, Credit Sales Revenue
d) A: Debit Cash, Credit Accounts Receivable; B: Debit Sales Revenue, Credit Cash

Answer 1

The student's question involves creating proper journal entries for sales and subsequent payment. A is: Debit Accounts Receivable and Credit Sales Revenue for the sale; B is: Debit Cash and Credit Accounts Receivable for the payment considering the discount. Additionally, the cost is recorded as Debit Cost of Goods Sold and Credit Inventory.

Step-by-step explanation:

The correct configuration of journal entries for Bates to recognize the sale and subsequent payment would be:

1. A: Debit Accounts Receivable $120,000, Credit Sales Revenue $120,000. This entry records the initial sale of the surfboards at $400 per board.
2. B: Debit Cash $116,400, Credit Accounts Receivable $116,400. This entry considers the 3% sales discount for payment within 15 days (3/15), subtracting $3,600 from the total amount receivable ($120,000).

For the cost to Bates, which is $140 per surfboard, the Cost of Goods Sold should also be recorded when the sale occurs:

1. Debit Cost of Goods Sold $42,000, Credit Inventory $42,000. This entry decreases inventory and records the cost of the surfboards sold.

To address the question that includes the sale of surfboards on March 1 and payment on March 10:

• A. The correct journal entry for the initial sale is: Debit Accounts Receivable, Credit Sales Revenue.
• B. The correct journal entry for the payment on March 10, considering the discount, is: Debit Cash, Credit Accounts Receivable.