Santana Co. sold merchandise to Birch Co. on account, $6,000, terms 2/15, n/30. The cost of the merchandise sold is $4,000. Santana Co. issued a credit memo for $800 for merchandise returned and later received the amount due within the discount period. Th

Santana Co.'s entry: Accounts Receivable - Birch Co. $5,864 ($6,000 - $800 + $64) Sales $6,000 Cost of Goods Sold $4,000 Inventory $550 Accounts Payable $5,414 ($5,864 - $450) Explanation: - The sales of $6,000 is recorded as a credit entry to Sales and a debit entry to Accounts Receivable - Birch Co. - The cost of goods sold of $4,000 is recorded as a debit entry to Cost of Goods Sold and a credit entry to Inventory. - The return of merchandise of $800 is recorded as a debit entry to Accounts Receivable - Birch Co. and a credit entry to Sales. A difference of $64 is recorded as a credit entry to Sales Returns and Allowances account, which is a contra-revenue account. - The cost of the merchandise returned of $550 is recorded as a debit entry to Inventory and a credit entry to Cost of Goods Sold. Birch Co.'s entry: Accounts Payable $5,414 Inventory $550 Cash $5,200 ($5,414 x 0.98) Explanation: - Birch Co. pays the amount due to Santana Co. within the discount period, which is 15 days from the date of sale. The payment of $5,200 is calculated as $5,414 x 0.98 (2% discount). - Birch Co. records the payment by debiting Accounts Payable and Inventory accounts and crediting Cash account.