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Cornerstones of Financial Accounti...

4th Edition
Jay Rich + 1 other
ISBN: 9781337690881

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Cornerstones of Financial Accounti...

4th Edition
Jay Rich + 1 other
ISBN: 9781337690881
Textbook Problem
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Sales Discounts Not Taken

Assume the same information as in Brief Exercise 5-42: Gordon’s Grocers purchases bread from Buddy’s Bread Company at $1.45 per loaf. Gordon’s engaged in a customer service contract to purchase 20,000 loaves of Buddy’s bread. Buddy offered credit at terms of 2/10, n/30 and expects Gordon to pay within the discount period.

Required:

Prepare the journal entry assuming the payment is made after 10 days (after the discount period).

To determine

Sales discounts:

The term 2/10,n/30 means that if a customer is paying in 10 days then the payment will be after a discount of 2% on the total value but if the customer is paying in 30 days then the payment will be made in full which means no discount.

To calculate:

The journal entry for receiving payment after 10 days.

Explanation

The service contract has a price of $29,000($1.45×20,000) and the payment is received after 10 days and the discount for the early payment is 2%. This is given in the question.

The journal entry for Buddy’s Bread Company is as follows:

Date Particulars Debit

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