Question

Outdoor Expo provides guided fishing tours. The company charges $200 per person but offers a 10% discount to parties of four or more. Consider the following transactions during the month of May.

May 2 Charlene books a fishing tour with Outdoor Expo for herself and four friends at the group discount price ($900 = $180 × 5). The tour is scheduled for May 7.
May 7 The fishing tour occurs. Outdoor Expo asks that payment be made within 30 days of the tour and offers a 5% discount for payment within 15 days.
May 9 Charlene is upset that no one caught a single fish and asks management for a discount. Outdoor Expo has a strict policy of no discounts related to number of fish caught.
May 15 Upon deeper investigation, management of Outdoor Expo discovers that Charlene’s tour was led by a new guide who did not take the group to some of the better fishing spots. In concession, management offers a sales allowance of 40% of the amount due.
May 20 Charlene pays for the tour after deducting the sales allowance.

Required:
a. Record the necessary transaction(s) for Outdoor Expo on each date.
b. Calculate net sales.
c. Show how Outdoor Expo would present net sales in its income statement.

Answer 1

a. Recording of transactions:

May 7, Accounts Receivable (Dr.) $900

Sales Revenue (Cr.) $900

May 15, Customer service Expense (Dr.) $360

Sales Allowance (Cr.) $360

May 20, Cash (Dr.) $495

Cash Discount (Dr.) $45

Sales Allowance (Dr.) $360

Accounts receivable (Cr.) $900

Step-by-step explanation:

b. Net Sales :

Total Quote ($180 * 5 ) = $900

Less : Cash Discount 5% = 45

Less : Sales Allowance 40% = 360

Net Sales = $495

c. Outdoor expo will record sales after deducting the cash discount. This discount is availed by customer as repayment is made within 15 days. The sales allowance is subtracted from the gross sales as the compensation is made from the outdoor expo due to mistake from their guide on tour. The net sales reported in Income statement will be $495.