Chapter 8, Problem 9BP

To determine

Prepare the journal entries to record the LP transactions.

Explanation of Solution

Prepare the journal entries to record the sales for an account.

Date	Account Title and Explanation	Debit ($)	Credit ($)
May 15	Accounts Receivable	1,350
	Sales Revenue		1,350
	(To record the sales on account)

Table (1)

• Accounts receivable is a current asset, and it is increased. Therefore, debit accounts receivable account for $1,350.
• Sales revenue is a component of stockholders’ equity, and it is increased. Therefore, credit sales revenue account for $1,350.

Prepare the journal entry to record cost of goods sold.

Date	Account Title and Explanation	Debit ($)	Credit ($)
May 15	Cost of Goods Sold	760
	Merchandised Inventory		760
	(To record the cost of goods sold)

Table (2)

• Cost of goods sold is a component of stockholders’ equity and it is decreased. Therefore, debit cost of goods sold account for $760.
• Merchandise inventory is a current asset, and it is decreased. Therefore, credit merchandise inventory account for $760.

Prepare the journal entry to record sales on account.

Date	Account Title and Explanation	Debit ($)	Credit ($)
May 16	Accounts Receivable	20,000
	Sales Revenue		20,000
	(To record the sales on account)

Table (3)

• Accounts receivable is a current asset, and it is increased. Therefore, debit accounts receivable account for $20,000.
• Sales revenue is a component of stockholders’ equity, and it is increased. Therefore, credit sales revenue account for $20,000.

Prepare the journal entry to record cost of goods sold.

Date	Account Title and Explanation	Debit ($)	Credit ($)
May 16	Cost of Goods Sold	13,000
	Merchandised Inventory		13,000
	(To record the cost of goods sold)

Table (4)

• Cost of goods sold is a component of stockholders’ equity, and it is decreased. Therefore, debit cost of goods sold account for $13,000.
• Merchandise inventory is a current asset, and it is decreased. Therefore, credit merchandise inventory account for $13,000.

Prepare the journal entry to record credit card sale (subsequent collection)) of $2,600 of processor fee of 3%.

Date	Account Title and Explanation	Debit ($)	Credit ($)
May 18	Accounts receivable  - UM	2,522
	Credit card expense	78
	Sales Revenue		2,600
	(To record the credit card sales.)

Table (5)

Calculate the processor fee.

$\begin{array}{c}\text{Processor Fee = 3\% of \$2,600}\\ \text{= \$78}\end{array}$ (1)

Calculate accounts receivable.

$\begin{array}{c}\text{Account receivable = Sales Amount }-\text{ Processor fee}\\ \text{= \$2,600 }-\text{ \$78}\\ \text{= \$2,522}\end{array}$ (2)

• Accounts receivable is a current asset, and it is increased. Therefore, debit accounts receivable account for $2,522.
• Credit card expense is a component of stockholders’ equity, and it is decreased. Therefore, debit credit card expense account for $78.
• Sales revenue is a component of stockholders’ equity, and it is increased. Therefore, credit sales revenue account for $2,600.

Prepare the journal entry to record cost of goods sold.

Date	Account Title and Explanation	Debit ($)	Credit ($)
May 18	Cost of Goods Sold	1,500
	Merchandised Inventory		1,500
	(To record the cost of goods sold)

Table (6)

• Cost of goods sold is a component of stockholders’ equity and it is decreased. Therefore, debit cost of goods sold account for $1,500.
• Merchandise inventory is a current asset, and it is decreased. Therefore, credit merchandise inventory account for $1,500.

Prepare the journal entry to record credit card sale (immediate credit) of $9,000 of processor fee of 2%.

Date	Account Title and Explanation	Debit ($)	Credit ($)
May 19	Cash	8,820
	Credit card expense	180
	Sales Revenue		9,000
	(To record the credit card sale.)

Table (7)

Working notes:

Calculate processor fee.

$\begin{array}{c}\text{Processor Fee = 2\% of \$9,000}\\ \text{= \$180}\end{array}$ (3)

Calculate accounts receivable.

$\begin{array}{c}\text{Account receivable = Sales Amount }-\text{ Processor fee}\\ \text{= \$9,000 }-\text{ \$180}\\ \text{= \$8,820}\end{array}$ (4)

• Cash is a current asset, and it is increased. Therefore, debit cash account for $8,820.
• Credit card expense is a component of stockholders’ equity, and it is decreased. Therefore, debit credit card expense account for $180.
• Sales revenue is a component of stockholders’ equity, and it is increased. Therefore, credit sales revenue account for $9,000.

Prepare the journal entry to record cost of goods sold for $4,500.

Date	Account Title and Explanation	Debit ($)	Credit ($)
May 19	Cost of Goods Sold	4,500
	Merchandised Inventory		4,500
	(To record the cost of goods sold)

Table (8)

• Cost of goods sold is a component of stockholders’ equity and it is decreased. Therefore, debit cost of goods sold account for $4,500.
• Merchandise inventory is a current asset, and it is decreased. Therefore, credit merchandise inventory account for $4,500.

Prepare the journal entry to record for received cash payment from L.

Date	Account Title and Explanation	Debit ($)	Credit ($)
May 20	Cash	19,600
	Sales Discount	400
	Accounts Receivable		20,000
	(To record the receipt of cash from L)

Table (9)

Working notes:

Calculate sales discount.

$\begin{array}{c}\text{Sales Discount = Amount}\text{Due}\times \text{Rate of Discount}\\ \text{=}\text{\$20,000}\times \text{2\% }\\ \text{=}\text{\$400}\end{array}$ (5)

Calculate cash received.

$\begin{array}{c}\text{Cash Received = }\left(\begin{array}{l}\text{Invoice Price }\\ -\text{Sales Discount}\end{array}\right)\\ =\$20,000-\$400\\ =\$19,600\end{array}$ (6)

• Cash is a current asset, and it is increased. Therefore, debit cash account for $19,600.
• Sales discount is a component of stockholders’ equity, and it is decreased. Therefore, debit sales discount for $400.
• Accounts receivable is a current asset, and it is decreased. Therefore, credit accounts receivable account for $20,000.

Prepare the journal entry to record for received cash payment from UM.

Date	Account Title and Explanation	Debit ($)	Credit ($)
May 21	Cash	2,522
	Accounts receivable - UM		2,522
	(To record the collection from credit card company.)

Table (10)

• Cash is a current asset, and it is increased. Therefore, debit cash account for $2,522.
• Accounts receivable is a current asset, and it is decreased. Therefore, credit accounts receivable account for $2,522.