Sleep Letter Mattresses sells specialized mattresses to customers with free deli
ID: 2525186 • Letter: S
Question
Sleep Letter Mattresses sells specialized mattresses to customers with free delivery and installation and removal of your old mattress. A current promotion allows customers to purchase a mattress on credit and make 12 equal monthly payments of $200 with no interest. If customers don't want the delayed payments they can pay now for $2,000 cash and receive a free pillow top mattress cover. They don't sell installation and removal of the old mattress separately, but estimate after markup the stand-alone value of those services to be $100. They estimate the stand-alone value of mattress to be $1,900. Sleep Letter sells the mattress covers separately for $200 3. A customer purchases a mattress and opts to pay now. She pays and receives the mattress cover on June 28th. Delivery, installation and removal of the mattress occurs on July 1st. Record journal entries related to this contract (ignore costs). Another customer purchases a mattress and takes the credit option. After conducting a credit check to make sure he qualifies, the company assigns this customer to a class of customers where 12% is an appropriate rate of interest for the contract. He makes the first payment on June 28th. Delivery, installation and removal of the mattress also occurs on July 1st. Record journal entries related to this contract (ignore costs). Assume that with the 12 month period that Sleep Letter Mattresses should incorporate the time value of money. They amortize discounts/premiums on notes using the effective interest method. a. b.Explanation / Answer
Situation 1.
Option to pay now
June 28 Cash a/c Dr. 2000
To mattress sale a/c 2000
July 1 Promotion expenses a/c Dr. 200
To Mattress Cover Sale a/c 200
July 1 Insatllation facility a/c Dr. 100
To Promotion Expenses 100
July 1 P&L a/c Dr. 100
To Promotion Expenses 100
Option 2.
Installmets
June 28 Cash a/c Dr. 200
To Debtor a/c 200
July 1
Insatllation facility a/c Dr. 100
To Promotion Expenses 100
July 1 P&L a/c Dr. 100
To Promotion Expenses 100
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