Green Day Inc. sold merchandise for $23,000 on account with terms of 3/15, n/30. The company uses a perpetual inventory system. After two days, it received defective merchandise worth $2,000. The journal entry to record the cash receipt for the sale if the payment is received within 10 days of the invoice date would include ________.

Question

BlackTom AI · Accepted Answer

First, I restate the key facts and the four answer options to ensure we’re analyzing the same scenario.
- The sale was for 23,000 on account with terms 3/15, n/30.
- After two days, defective merchandise worth 2,000 was received (this reduces the amount owed by the customer).
- If payment is received within 10 days, the buyer is eligible for the 3% sales discount.
- We’re looking for the journal entry that records the cash receipt under these conditions in a perpetual inventory system.

Option A: a debit to Sales Revenue for $23,000, a credit to Accounts Receivable for $21,000, and a credit to Sales Discounts for $2,000
- This entry misstates the flow: Sales Revenue is not debited when collecting cash; it is unaffected or already recorded at the time of sale. Debiting Sales Revenue would incorrectly reduce revenue. Also, the accounts receivable should be reduced by the amount owed after any defect adjustment, not by 21,000 directly. The 2,000 defect would more naturally affect either AR or an offsetting sales returns/allowances account, not a credit to Sales Discounts.

Option B: a debit to Cash for $20,370, a debit to Sales Discount for $630, and a credit to Accounts Receivable for $21,000
- This aligns with the scenario: the customer’s amount due after the 2,000 defect is 21,000 (23,000 − 2,000). Since payment is within 15 days (within 10 days here), they receive a 3% discount on 21,000, which is 630. The customer thus pays 21,000 − 630 = 20,370 in cash, so Cash is debited for 20,370, Sales Discounts debited for 630, and Accounts Receivable credited for 21,000 to write off the receivable.

Option C: a debit to Cash for $21,000, a debit to Merchandise Inventory for $2,000, and a credit to Accounts Receivable for $23,000
- This would imply receiving full 21,000 in cash plus restocking the inventory, which doesn’t reflect the discount mechanics correctly. The cash received should reflect the discounted amount, and the 2,000 defect does not become part of cash received; it would affect inventory/COGS separately, not the cash receipt alone.

Option D: a debit to Cash for $21,000, a credit to Merchandise Inventory for $630, and a credit to Sales Revenue for $21,000
- This entry misallocates the discount (you wouldn’t credit Sales Revenue for the cash collection) and creates an inconsistent pairing between cash and inventory. It also ignores the 3% discount on the correct amount and doesn’t properly reduce AR.

Putting these pieces together, the only entry that correctly reflects: (1) the 2,000 defect reducing the amount owed, (2) the 3% discount applied to the remaining 21,000, and (3) the proper final cash receipt amount, is Option B. It records the cash received as 20,370, records the 630 discount as a separate reduce of revenue via Sales Discounts, and reduces Accounts Receivable by 21,000, matching the total amount owed after the defect adjustment.

33:010:272:05 INTRO FINANCIAL ACCT Final exam- Requires Respondus LockDown Browser

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