Question

(a) On March 2, Sage Hill Company sold $891,900 of merchandise to Oriole Company on account, terms 3/10, n/30. The cost of the merchandise sold was $527,400. (b) On March 6, Oriole Company return $114,400 of the merchandise purchased on March 2. The cost of the merchandise returned was $64,100. (c) On March 12, Sage Hill Company received the balance due from Oriole Company.

Answer 1

Answer:

See explanation section.

Explanation:

                                              Sage Hill Company

                                              Journal entries

Requirement A.

March 2 Account receivable - Oriole Company    debit  $891,900

                    Sales revenue                                         credit   $891,900

Note: Assume that the company used gross method under a perpetual inventory system, during the sales, the company did not deduct the discount.

Cost of good sold            Debit  $527,400

Merchandise inventory   Credit  $527,400

Note: Under the perpetual inventory system, a seller has to record cost of good sold journal.

Requirement B & C.

B.

March 6 Sales Returns and Allowances Debit    $114,400

Account Receivable                   Credit   $114,400

Note: As the company did not calculate the cost of return goods, we did not give the cost of merchandise journal.

C.

March 12 Cash                            Debit     $891,900

Sales Discounts          Debit     $26,757

Account Receivable   Credit    $891,900

Note: Calculation: (891,900-(891,900 × 3%) = (891,900 - 26,757) = $865,143.

As the company received the amount with in the discount period, the customer got the discount from the seller.