Question

8. Menards provides an 11% rebate on all sales during the month of May. There were 1,000,000 dollars in sales. $300,000 was received in cash and $700,000 was visa receivable. The cost of inventory was $400,000. Menards expects about 10% of sales to actually send in receipts for the rebate. Prepare ALL entries for May sales and contingent liabilities.

Answer 1

Journal entries to be recorded as under:

Entry for	Date	General Journal	Debit	Credit
Sales	May	Accounts Receivables A/c	$ 700,000
		Cash A/c	$ 300,000
		To Sales A/c		$        1,000,000
		(being sales made on credit as well as on cash)
COGS	May	Cost of Goods Sold A/c	$ 400,000
		To Inventory A/c		$            400,000
		(being Cost of goods sold recorded for sales made in May)
Contingent liability	May	Provision for Rebate A/c	$    11,000
		To Rebate Payable A/c		$              11,000
		(being provision for 11% rebate on sales recorded for the month of May)

Explanation:

Sales: Sales made is partial in cash and partial on credit. Journal entry recorded accordingly.

COGS: Cost of Goods sold (COGS) is recorded at the value provided in the question.

Contingent Liability: Value of contingent liability is calculated as under;

= Sales * Rebate Rate * Expected rate of sales which will send in receipts for the rebate

= $ 1,000,000 * 11% * 10% = $ 11,000

Provision for rebate will be debited and liability will be credited