On April 2, Cindy Elston uses her JCPenney credit card to purchase merchandise from a JCPenney store for $1,000. On May 1, Elston is billed for the $1,000 amount due. Elston pays $500 on the balance due on May 3. Elston receives a bill dated June 1 for the amount due, including interest at 3% per month on the unpaid balance as of May 3. Prepare the entries on JCPenney Co’s books related to the transactions that occurred on April 2, May 3, and June 1. (Credit account titles are automatically indented when amount is entered. Do not indent manually. If no entry is required, select “No Entry” for the account titles and enter for the amounts.) Date Account Titles and Explanation Debit Credit
The Correct Answer and Explanation is :
To record the transactions on JCPenney’s books related to Cindy Elston’s credit card purchase, payment, and subsequent billing, the following entries will be made:
April 2: Sale on Credit
When Cindy Elston makes a purchase on credit, JCPenney records a sale and an increase in receivables.
Date: April 2
| Account Titles and Explanation | Debit | Credit |
|---|---|---|
| Accounts Receivable (Elston’s account) | $1,000 | |
| Sales Revenue | $1,000 |
Explanation: On April 2, Elston buys $1,000 worth of merchandise on credit. The sale is recorded as an increase in accounts receivable and sales revenue.
May 3: Payment Made
Elston makes a partial payment of $500 on May 3, which reduces her outstanding balance.
Date: May 3
| Account Titles and Explanation | Debit | Credit |
|---|---|---|
| Cash | $500 | |
| Accounts Receivable (Elston’s account) | $500 |
Explanation: When Elston makes a $500 payment, the cash account increases and the accounts receivable balance is reduced accordingly.
June 1: Interest Billing
On June 1, JCPenney bills Elston for the interest on her outstanding balance of $500, calculated at 3% per month.
The interest charged is:
[ \text{Interest} = 3\% \times 500 = 15 \, \text{(dollars)} ]
Date: June 1
| Account Titles and Explanation | Debit | Credit |
|---|---|---|
| Accounts Receivable (Elston’s account) | $15 | |
| Interest Revenue | $15 |
Explanation: JCPenney charges $15 interest (3% of $500) for the month of May. The accounts receivable increases to reflect the new balance owed by Elston, and the interest revenue is recognized.
Summary:
- On April 2, JCPenney records the sale on credit.
- On May 3, JCPenney receives a payment of $500, reducing the receivable.
- On June 1, interest is charged on the remaining balance, and the interest income is recognized.
These journal entries reflect the cash flow and accrual accounting practices used by JCPenney in handling credit transactions.