On October 1, Whaley Company sold merchandise in the amount of $5,800 to Lee Company, with credit terms of 2/10, n/30. The cost of the items sold is $4,000. Whaley uses the perpetual inventory system. Lee pays the invoice on October 8, and takes the appropriate discount. The journal entry that Whaley makes on October 8 is:
A) Choice A
B) Choice B
C) Choice C
D) Choice D
E) Choice E

Question

Quizplus · Accepted Answer

The correct journal entry for Whaley Company on October 8, when Lee pays the invoice and takes the discount, involves recording the cash received, the sales discount, and reducing accounts receivable. Under the terms 2/10, n/30, Lee gets a 2% discount for paying within 10 days. The discount amount is $5,800 * 2% = $116. Therefore, the cash received is $5,800 - $116 = $5,684. The journal entry is: Debit Cash $5,684, Debit Sales Discounts $116, and Credit Accounts Receivable $5,800. This entry reflects the receipt of cash with the discount and the reduction of the receivable amount.

On October 1, Whaley Company Sold Merchandise in the Amount