Sales and Sales Returns and Allowances

Rubin Enterprises had the following sales-related transactions on a recent day:

List price of services provided on credit was $27,500; terms 2/10, n/30. Collected $5,875 in cash for services to be provided in the future. The customer complained about aspects of the services provided in Transaction a. To maintain a good relationship with this customer, Rubin granted an allowance of $1,500 off the list price. The customer had not yet paid for the services. Rubin provided the services for the customer in Transaction b. Additionally, Rubin granted an allowance of $350 because the services were provided after the promised date. Because the customer had already paid, Rubin paid the $350 allowance in cash.

Required:

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1. Prepare the necessary journal entry (or entries) for each of these transactions.

Account and Explanation

Debit

Credit

a.

Record sale

b.

Record collection of cash for future services

c.

Record allowance due to inadequate service being provided

d.

Record recognition of sales revenue

Record allowance for services which were performed late

2. Conceptual Connection: What concerns would Rubin have assuming that the sales allowances for this period were significantly higher than in previous periods both in absolute terms and as a percentage of gross sales?