Sagan Company uses the perpetual inventory method.On October 6,Sagan sold merchandise to Parley Co.for $20,000 under credit terms of 2/10,n/60.On October 9,Parley returned $5,000 of that merchandise.On October 15,Sagan received balance due from Parley Co.How would Sagan record this transaction?
A)Debit Cash for $20,000 and credit Accounts Receivable for $20,000.
B)Debit Cash for $15,000 and credit Accounts Receivable for $15,000.
C)Debit Cash for $14,700,debit Sales Discounts for $300,and credit Accounts Receivable for $15,000.
D)Debit Cash for $14,700,debit Sales Discounts for $300,and credit Sales for $15,000.
E)Debit Cash for $15,000,credit Sales Discounts for $300,and credit Accounts Receivable for $14,700

Question

Quizplus · Accepted Answer

Sagan Company will first record the sale on October 6 as a debit to Accounts Receivable for $20,000 and a credit to Sales for $20,000.

When Parley returns $5,000 of merchandise on October 9, Sagan will reverse the original sale by debiting Sales Returns and Allowances for $5,000 and crediting Accounts Receivable for $5,000.

Finally, when Sagan receives the balance due from Parley on October 15, they will record the payment as follows:

Debit Cash for $14,700 (which is the balance due of $15,000, less the 2% sales discount of $300)
Debit Sales Discounts for $300 (the amount of the discount taken by Parley)
Credit Accounts Receivable for $15,000 (the amount Parley owed before the discount)

Therefore, the correct answer is C.

Sagan Company Uses the Perpetual Inventory Method