Final answer:
Ellis Co. records the sale by debiting Accounts Receivable and crediting Sales Revenue, and the cost of goods by debiting Cost of Goods Sold and crediting Inventory. Freight costs are a selling expense and recorded by debiting Delivery Expense and crediting Cash. When the payment is received within the discount period, a sales discount is also recorded.
Step-by-step explanation:
The initial transaction is the sale of merchandise by Ellis Co. to Chang Co. Since the terms are FOB shipping point, Ellis Co. is responsible for the freight costs. The sale is recorded by debiting Accounts Receivable and crediting Sales Revenue for the selling price of $147,800. The cost of goods sold is recorded by debiting Cost of Goods Sold and crediting Inventory for $88,680. Freight is considered a selling expense in this case and is recorded by debiting Delivery Expense and crediting Cash for $2,500. When Chang Co. pays within the discount period, Ellis Co. will record the receipt of cash, and the sales discount taken by the buyer will be credited to Sales Discounts, reducing the revenue previously recorded.