During 2019, Reed Corporation sold merchandise for a total of $900,000. The cost of merchandise to Reed was $675,000. Reed offers credit terms of 1/10, n/30 to encourage early payment. At year-end, there are $22,500 of sales still eligible for the 1% discount. Reed believes that all of the companies will pay within the discount period to receive the 1% discount. Assume Reed's fiscal year is December 31.
Reed's adjusting journal entry will include:

Question

Quizplus · Accepted Answer

DThe correct adjusting journal entry to account for the anticipated sales discounts would include a debit to Sales Discounts for $225, which reflects the 1% discount on the $22,500 of sales still eligible for the discount (1% of $22,500 = $225). This decreases the sales revenue to reflect the expected reduction from the discounts taken by customers. Additionally, a credit to Sales Discounts for $225 is incorrect in the context of adjusting entries for anticipated discounts; typically, the credit would go to an account like Allowance for Sales Discounts or Accounts Receivable, not back to Sales Discounts. However, since the only correct action mentioned is the debit to Sales Discounts, option A is correct, and option D is mentioned due to the format requirement but is not a correct action in standard accounting practices.

During 2019, Reed Corporation Sold Merchandise for a Total of $900,000