Question

You are having a hard time selling a stuffed (deceased) pony from your downtown showroom and decide to offer a sales discount for early payment to any customer who will purchase the pony and pay within 10 days. The normal selling price is $8,000, but customers who pay within the discount period will receive a 20% discount. Full payment must be made within 30 days (20/10, n/30). A customer purchases the pony on account but calls you up the next day to complain that the pony has mold damage. They want to return the pony, but you convince them to keep it by offering them a partial refund of 15%. Two days after the customer received the partial refund (3 days after the initial purchase), the customer pays their remaining balance in full.

PAY ATTENTION: THIS QUESTION HAS 2 PARTS (AND IS WORTH 10 POINTS).

From the answer choices below select the option which correctly states both of the following:

• An item that would be included in the journal entry recorded on the day that you offer the customer the partial discount (assuming the journal entry for the initial purchase was correctly recorded)
• The amount of cash you receive when the customer pays you in full 3 days after the initial purchase.

For example, if the journal entry at the time of the partial refund is:

Moldy Pony Expense                      $3 gazillion dollars

        Angry Customer Liability                                                        $3 gazillion dollars

And the amount of cash received when the customer pays in full is $0.52 then a correct answer would be:

        DEBIT to Moldy Pony Expense for $3 gazillion dollars; $0.52

Only one of the answer choices given below is completely correct.

		CREDIT to Sales Allowances for $1,200; $1,360
		CREDIT to Accounts Receivable for $1,200; $1,360
		CREDIT to Cash for $1,200; $1,360
		CREDIT to Sales Returns for $1,200; $1,360
		CREDIT to Sales Discounts for $960; $1,360
		CREDIT to Trade Discounts for $960; $1,360
		CREDIT to Sales Revenue for $960; $1,360
		CREDIT to Accounts Payable for $960; $1,360
		CREDIT to Sales Allowances for $1,200; $5,440
		CREDIT to Accounts Receivable for $1,200; $5,440
		CREDIT to Cash for $1,200; $5,440
		CREDIT to Sales Returns for $1,200; $5,440
		CREDIT to Sales Discounts for $960; $5,440
		CREDIT to Trade Discounts for $960; $5,440
		CREDIT to Sales Revenue for $960; $5,440
		CREDIT to Accounts Payable for $960; $5,440
		CREDIT to Sales Allowances for $1,200; $6,800
		CREDIT to Accounts Receivable for $1,200; $6,800
		CREDIT to Cash for $1,200; $6,800
		CREDIT to Sales Returns for $1,200; $6,800
		CREDIT to Sales Discounts for $960; $6,800
		CREDIT to Trade Discounts for $960; $6,800
		CREDIT to Sales Revenue for $960; $6,800
		CREDIT to Accounts Payable for $960; $6,800
		CREDIT to Sales Allowances for $1,200; $768
		CREDIT to Accounts Receivable for $1,200; $768
		CREDIT to Cash for $1,200; $768
		CREDIT to Sales Returns for $1,200; $768
		CREDIT to Sales Discounts for $960; $768
		CREDIT to Trade Discounts for $960; $768
		CREDIT to Sales Revenue for $960; $768
		CREDIT to Accounts Payable for $960; $768
		CREDIT to Sales Allowances for $1,200; $10,400
		CREDIT to Accounts Receivable for $1,200; $10,400
		CREDIT to Cash for $1,200; $10,400
		CREDIT to Sales Returns for $1,200; $10,400
		CREDIT to Sales Discounts for $960; $10,400
		CREDIT to Trade Discounts for $960; $10,400
		CREDIT to Sales Revenue for $960; $10,400
		CREDIT to Accounts Payable for $960; $10,400
		CREDIT to Sales Allowances for $1,200; $960
		CREDIT to Accounts Receivable for $1,200; $960
		CREDIT to Cash for $1,200; $960
		CREDIT to Sales Returns for $1,200; $960
		CREDIT to Sales Discounts for $960; $960
		CREDIT to Trade Discounts for $960; $960
		CREDIT to Sales Revenue for $960; $960
		CREDIT to Accounts Payable for $960; $960
		CREDIT to Sales Allowances for $1,200; $1,600
		CREDIT to Accounts Receivable for $1,200; $1,600
		CREDIT to Cash for $1,200; $1,600
		CREDIT to Sales Returns for $1,200; $1,600
		CREDIT to Sales Discounts for $960; $1,600
		CREDIT to Trade Discounts for $960; $1,600
		CREDIT to Sales Revenue for $960; $1,600
		CREDIT to Accounts Payable for $960; $1,600
		CREDIT to Sales Allowances for $1,200; $6,400
		CREDIT to Accounts Receivable for $1,200; $6,400
		CREDIT to Cash for $1,200; $6,400
		CREDIT to Sales Returns for $1,200; $6,400
		CREDIT to Sales Discounts for $960; $6,400
		CREDIT to Trade Discounts for $960; $6,400
		CREDIT to Sales Revenue for $960; $6,400
		CREDIT to Accounts Payable for $960; $6,400

Answer 1

The journal entries that will be recorded in relation to the sale of the stuffed (deceased) pony are as under:

Date	Account Titles	Debit	Credit
Initial Purchase	Accounts receivable	8000
	Sales revenue		8000
Next Day	Sales allowance (15% x $8000)	1200
	Accounts receivable		1200
3 Days after Initial Purchase	Cash ($6800 - $1360)	5440
	Sales discount (20% x $6800)	1360
	Accounts receivable ($8000 - $1200)		6800

1. An item that would be included in the journal entry recorded on the day of offering the partial discount is: Credit to Accounts Receivable for $1,200.

2. The amount of cash received 3 days after the initial purchase is: $5,440

Thus, the answer is:

Answer: CREDIT to Accounts Receivable for $1,200; $5,440