Olivieri Company uses the perpetual inventory method.On January 5,Olivieri sold merchandise to Sulo Inc.for $10,000 under credit terms of 2/10,n/30,FOB destination.The merchandise had cost $7,500.How would the company record this transaction?
A)Debit Accounts Receivable for $10,000,credit Sales for $10,000,debit Cost of Goods Sold for $7,500,and credit Merchandise Inventory for $7,500.
B)Debit Cash for $10,000,credit Sales for $10,000,debit Cost of Goods Sold for $7,500,and credit Merchandise Inventory for $7,500.
C)Debit Accounts Receivable for $10,000 and credit Sales for $10,000.
D)Debit Accounts Receivable for $10,000,debit Cost of Goods Sold for $7,500,and credit Gross Margin for $7,500.
E)Debit Accounts Receivable for $9,800,credit Sales for $9,800,debit Cost of Goods Sold for $7,500,and credit Merchandise Inventory for $7,500.

Question

Quizplus · Accepted Answer

The company should debit Accounts Receivable for the full amount of $10,000, as this is the amount that will be collected from Sulo Inc. in the future. They should also credit Sales for $10,000, as this is the revenue earned from the sale. Then, they should debit Cost of Goods Sold for $7,500, reflecting the cost of the merchandise sold, and credit Merchandise Inventory for $7,500 to reflect the reduction in inventory from the sale. The terms of 2/10,n/30 indicate that Sulo Inc. can receive a 2% discount if they pay within 10 days, so this would be recorded separately if they choose to take advantage of the discount.

Olivieri Company Uses the Perpetual Inventory Method