Exercise 5-20B Recording estimates of future discounts LO P6 Med Labs has the following December 31 year-end unadjusted balances: Allowance for Sales Discounts, $0; and Accounts Receivable, $5,500. Of the $5,500 of receivables, $1,250 are within a 2% discount period, meaning that it expects buyers to take $25 in future-period discounts arising from this period's sales. a. Prepare the December 31 year-end adjusting journal entry for future sales discounts. b. Assume the same facts above and that there is a $9 year-end unadjusted credit balance in Allowance for Sales Discounts. Prepare the December 31 year-end adjusting journal entry for future sales discounts.

Answer and Explanation:

The adjusted journal entries are shown below:

a. Sales discount Dr $25

          To Allowance for sales discount $25

(Being the expected sales discount is recorded)

For recording this we debited the sales discount as it increased the discount and credited the allowance for sales discount as it also increased the allowance balance

b.  Sales discount Dr $16  ($25 - $9)

          To Allowance for sales discount $16

(Being the expected sales discount is recorded)

For recording this we debited the sales discount as it increased the discount and credited the allowance for sales discount as it also increased the allowance balance

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