Let’s break down the question step-by-step to arrive at the required solution.
1. Understanding the Scenario:
- Netherland Corporation has unadjusted balances of:
- Accounts Receivable: \[tex]$97,000 (debit)
- Allowance for Sales Discounts: \$[/tex]470 (credit)
- Out of these receivables, \[tex]$67,000 are within the discount period.
- The discount rate is 2%.
2. Calculating Expected Discounts:
- The expected discounts on the receivables within the discount period can be calculated as:
\[
\$[/tex]67,000 \times 2\% = \[tex]$67,000 \times 0.02 = \$[/tex]1,340
\]
3. Preparing Adjusting Entries:
- To account for the expected sales discounts, we need to create an adjusting entry that estimates the future sales discounts.
- This will involve debiting the "Sales Discounts" account (an expense account) and crediting the "Allowance for Sales Discounts" account (a contra-revenue account).
4. Adjusting Entry:
- The adjusting entry would look like this:
```
Account Title Debit Credit
---------------------------- ------- ---------
Sales Discounts 1,340
Allowance for Sales Discounts 1,340
```
Thus, the correct adjusting entry is:
- Debit "Sales Discounts" by \[tex]$1,340.
- Credit "Allowance for Sales Discounts" by \$[/tex]1,340.
Based on the provided multiple-choice options, the correct entry is:
[tex]\[
\begin{array}{|l|r|r|}
\hline
\text{Account Title} & \text{Debit} & \text{Credit} \\
\hline
\text{Sales Discounts} & \$1,340 & \\
\hline
\text{Allowance for Sales Discounts} & & \$1,340 \\
\hline
\end{array}
\][/tex]
