Question

Given below is the history of a sale on credit by SpongeBob Co. to Star Inc.

(Note: SpongeBob Co. uses the perpetual inventory system and the gross method to account for merchandise sales.)

i. June 25, 2005: SpongeBob Co. sold merchandise to Star Inc. for $9,000, terms 2/10, n/30. The inventory cost SpongeBob Co. $8000.

ii. December 31, 2007: After numerous attempts to collect, SpongeBob Co. wrote off Star Inc.'s account off as uncollectible. SpongeBob Co. uses an allowance account.

iii. June 30, 2010: Star Inc. contacted SpongeBob Co. with the intention to pay the outstanding amount, so SpongeBob Co. added Star Inc.'s account back into the system.

iv. July 5, 2010: Star Inc. paid the debt in full, plus $1,800 in interest.

Instructions: Record the 4 journal entries for SpongeBob Co at the time that they happen. Please also add the dates to the entries.

Answer 1

		Journal Entries in the books of SpongeBob Co.
	Date	Description	L. F.	Debit ($)	Credit ($)
	25/06/2015	Star Inc. A/c                                                      Dr.		9,000
		Cost of Goods Sold A/c                                Dr.		8,000
		To Revenue from Operations A/c			9,000
		To Inventory - Merchandise A/c			9,000
		(Sale of Merchandise at terms 2/10, n/30)
	31/12/2007	Allowance for Doubtful Accounts A/c     Dr.		9,000
		To Star Inc A/c			9,000
		(Star Inc A/c written off on allowance basis)
	05/07/2010	Star Inc. A/c                                                      Dr.		10,800
		To Interest on late payment A/c			1,800
		To Allowance for Doubtful Accounts A/c			9,000
		(Star Inc reinstated as payment is recived)
	05/07/2010	Bank A/c                                                             Dr.		10,800
		To Star Inc A/c			10,800
		(Payment recived on full setlement)