Problem Solving Survival Guide to accompany Financial Accounting, 8th Edition

SOLUTION TO EXERCISE 5-3

TIP: There is no entry affecting the Inventory account because there was no return of merchandise; there was a sales allowance granted.

TIP: This entry assumes the goods returned were still in good condition.

TIP: The amount was collected after the end of discount period so no discount is allowed.

TIP: The terms of a credit sale may include an offer for a cash discount, called a sales discount, to the customer for prompt payment of the balance due. Credit terms of 2/10, n/30, which is read “two-ten, net thirty” means that a 2% cash discount may be taken on the invoice price (less any returns or allowances) if payment is made within 10 days of the invoice date (the discount period); otherwise, the invoice price less any returns or allowances is due 30 days from the invoice date. Alternatively, the discount period may extend to a specified number of days following the month in which the sale occurs. For example, 1/10 EOM (end-of-month) means that a 1% discount ...