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Financial & Managerial Accounting
Found in: Page 349
Financial & Managerial Accounting

Financial & Managerial Accounting

Book edition 7th
Author(s) John J Wild, Ken W. Shaw, Barbara Chiappetta
Pages 1096 pages
ISBN 9781259726705

Short Answer

Archer Co. allows select customers to make purchases on credit. Its other customers can use either of two credit cards: Commerce Bank or Goldman. Commerce Bank deducts a 3% service charge for sales on its credit card. When customers use the Goldman card, a 2% service charge is deducted from sales on its card. Archer completed the following transactions in August.

Aug. 4 Sold $3,700 of merchandise on credit (that had cost $2,000) to McKenzie Carpenter.

10 Sold $5,200 of merchandise (that had cost $2,800) to customers who used their Commerce Bank credit cards.

11 Sold $1,250 of merchandise (that had cost $900) to customers who used their Goldman cards.

14 Received Carpenter’s check in full payment for the purchase of August 4.

15 Sold $3,250 of merchandise (that had cost $1,758) to customers who used their Goldman cards.

22 Wrote off the account of Craw Co. against the Allowance for Doubtful Accounts. The $498 balance in Craw Co.’s account stemmed from a credit sale in November of last year.

Required:

Prepare journal entries to record the preceding transactions and events. (The company uses the perpetual inventory system. Round amounts to the nearest dollar.)

Answer

Journal entries are passed in the books of Archer Co as of August in step 2.

See the step by step solution

Step by Step Solution

Step-by-Step SolutionStep 1: Meaning of Service Charge

A service charge is the type of payment charged by the banks against their customers' services.

Step 2: Journal entries

Date

Particulars

Debit($)

Credit($)

Aug 4

Accounts receivables

3,700

Sales revenue

3,700

(To record the sales)

2,000

Aug 4

Cost of goods sold

2,000

Merchandise inventory

(To record the cost of goods sold)

Aug 10

Credit card receivable

5,200

Sales revenue

5,200

(To record the sale)

Aug 10

Cost of goods sold

2,800

Merchandise inventory

2,800

(To record the cost of goods sold)

Aug 10

Credit card service charges

156

Cash

5,044

Credit card receivable

5,200

(To record the cash)

Aug 11

Credit card receivable

1,250

Sales revenue

1,250

(To record the sale)

Aug 11

Cost of goods sold

900

Merchandise inventory

900

(To record the cost of goods sold)

Aug 14

Sales discount

74

Cash

3,626

Accounts receivables

3,700

(To record the sales discount)

Aug 15

Credit card receivable

3,250

Sales revenue

3,250

(To record the sale)

Aug 15

Cost of goods sold

1,758

Merchandise inventory

1,758

(To record the cost of goods sold)

Aug 18

Accounts receivable- Aztec

4,490

Credit card receivable

4,490

(To record the accounts receivables)

Aug 22

Allowance for doubtful accounts

498

Accounts receivable

498

(To record the allowance)

Aug 25

Credit card service charges

90

Cash

4,400

Accounts receivables- Aztec

4,490

(To record the cash collection)

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