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Med Labs has the following December 31 year-end unadjusted balances: Allowance for Sales Discounts, \( \$ 0 \); and Accounts Receivable, \( \$ 6,500 \). Of the \( \$ 6,500 \) of receivables, \( \$ 1,750 \) are within a \( 2 \% \) discount period, meaning that it expects buyers to take \( \$ 35 \) 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 \( \$ 8 \) year-end unadjusted credit balance in Allowance for Sales Discounts. Prepare the December 31 year-end adjusting journal entry for future sales discounts. View transaction list

Ask by Carter Mccoy. in the United States
Mar 19,2025

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**a. Adjusting Entry with a \$0 Preexisting Balance** - Debit: Sales Discounts Expense \$35 - Credit: Allowance for Sales Discounts \$35 **b. Adjusting Entry with an \$8 Preexisting Credit Balance** - Debit: Sales Discounts Expense \$27 - Credit: Allowance for Sales Discounts \$27

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To address the scenarios you've provided for Med Labs, let's prepare the adjusting journal entries for future sales discounts step by step. ### a. Adjusting Journal Entry for Future Sales Discounts (without prior balance) Since there's no existing balance in the Allowance for Sales Discounts, the total future sales discounts expected will be accounted for directly. From the details, we see that there is an expected discount of \( \$35 \). **Journal Entry:** - **Debit:** Sales Discounts Expense \( \$35 \) - **Credit:** Allowance for Sales Discounts \( \$35 \) This entry recognizes the estimated sales discounts that will be taken up by customers in future periods. --- ### b. Adjusting Journal Entry for Future Sales Discounts (with prior balance) Now, considering a prior unadjusted credit balance of \( \$8 \) in the Allowance for Sales Discounts, the adjustment will take this existing balance into account. Since we expect discounts of \( \$35 \) but already have \( \$8 \) reserved, we need to adjust further by only \( \$27 \). **Journal Entry:** - **Debit:** Sales Discounts Expense \( \$27 \) - **Credit:** Allowance for Sales Discounts \( \$27 \) This entry updates the Allowance account to reflect the total expected discounts taking into account the previous balance. These entries ensure that the financial statements accurately reflect the sales discounts anticipated for the period, providing a clear picture for stakeholders.

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