On January 10, Kristin Pitt uses her Stampfer Co. credit card to purchase merchandise from Stampfer Co. for
1,700. On February 12, Pitt pays $1,100 on the balance due. On March 10, Pitt is billed for the amount due, including interest at 1% per month on the unpaid balance as of February 12. Instructions: Prepare the entries on Stampfer Co.’s books related to the transactions that occurred on January 10, February 12, and March 10. (Omit cost of goods sold entries.)
The Correct Answer and Explanation is:
Journal Entries for Stampfer Co.
January 10:
Kristin Pitt uses her Stampfer Co. credit card to buy merchandise worth $1,700. Stampfer Co. treats this as a sale on account.
Journal Entry:
markdownCopyEditJan 10
Accounts Receivable – Kristin Pitt 1,700
Sales Revenue 1,700
February 12:
Kristin Pitt makes a payment of $1,100 toward her account balance.
Journal Entry:
markdownCopyEditFeb 12
Cash 1,100
Accounts Receivable – Kristin Pitt 1,100
March 10:
Stampfer Co. charges 1% interest on the unpaid balance as of February 12. The remaining balance after the February payment is:1,700−1,100=6001,700 – 1,100 = 6001,700−1,100=600
Interest on $600 at 1% =600×0.01=6600 × 0.01 = 6600×0.01=6
Journal Entry:
markdownCopyEditMar 10
Accounts Receivable – Kristin Pitt 6
Interest Revenue 6
Explanation:
On January 10, the company recognizes a sale because Kristin Pitt made a purchase using the company’s credit card. Since she used internal credit, it is treated as an account receivable, not a cash sale.
On February 12, she makes a partial payment of $1,100, which reduces the outstanding balance. The company receives cash and reduces the receivable accordingly.
On March 10, interest is assessed on the unpaid balance that remained after February 12, which is $600. The interest of 1% is applied to this amount, leading to $6 in interest revenue. The company records this as additional accounts receivable and recognizes it as interest revenue earned from credit sales.
These entries allow the company to accurately track revenue, outstanding balances, and any interest earned from delayed payments in their accounting records.
