Chapter 7: Q1PSB (page 349)

Archer Co. allows select customers to make purchases on credit. Its other customers can use either of two credit cards: Commerce Bank or Goldman. Commerce Bank deducts a 3% service charge for sales on its credit card. When customers use the Goldman card, a 2% service charge is deducted from sales on its card. Archer completed the following transactions in August.
Aug. 4 Sold $3,700 of merchandise on credit (that had cost $2,000) to McKenzie Carpenter.
10 Sold $5,200 of merchandise (that had cost $2,800) to customers who used their Commerce Bank credit cards.
11 Sold $1,250 of merchandise (that had cost $900) to customers who used their Goldman cards.
14 Received Carpenter’s check in full payment for the purchase of August 4.
15 Sold $3,250 of merchandise (that had cost $1,758) to customers who used their Goldman cards.
22 Wrote off the account of Craw Co. against the Allowance for Doubtful Accounts. The $498 balance in Craw Co.’s account stemmed from a credit sale in November of last year.
Required:
Prepare journal entries to record the preceding transactions and events. (The company uses the perpetual inventory system. Round amounts to the nearest dollar.)

Expert verified

Answer

Journal entries are passed in the books of Archer Co as of August in step 2.

Step by step solution

A service charge is the type of payment charged by the banks against their customers' services.

Date	Particulars	Debit($)	Credit($)
Aug 4	Accounts receivables	3,700
	Sales revenue		3,700
	(To record the sales)
		2,000
Aug 4	Cost of goods sold		2,000
	Merchandise inventory
	(To record the cost of goods sold)

Aug 10	Credit card receivable	5,200
	Sales revenue		5,200
	(To record the sale)

Aug 10	Cost of goods sold	2,800
	Merchandise inventory		2,800
	(To record the cost of goods sold)

Aug 10	Credit card service charges	156
	Cash	5,044
	Credit card receivable		5,200
	(To record the cash)

Aug 11	Credit card receivable	1,250
	Sales revenue		1,250
	(To record the sale)

Aug 11	Cost of goods sold	900
	Merchandise inventory		900
	(To record the cost of goods sold)

Aug 14	Sales discount	74
	Cash	3,626
	Accounts receivables		3,700
	(To record the sales discount)

Aug 15	Credit card receivable	3,250
	Sales revenue		3,250
	(To record the sale)

Aug 15	Cost of goods sold	1,758
	Merchandise inventory		1,758
	(To record the cost of goods sold)

Aug 18	Accounts receivable- Aztec	4,490
	Credit card receivable		4,490
	(To record the accounts receivables)

Aug 22	Allowance for doubtful accounts	498
	Accounts receivable		498
	(To record the allowance)

Aug 25	Credit card service charges	90
	Cash	4,400
	Accounts receivables- Aztec		4,490
	(To record the cash collection)