To determine the correct adjusting journal entry, we need to consider the specific situation described.
According to the given information, Bava Corporation offers credit terms of 1/10, n/30, which means that customers are eligible for a 1% discount if they pay within 10 days. At year-end, there is still $15,000 of sales that are eligible for the 1% discount.
Since Bava Corporation believes that all customers will pay within the discount period to receive the 1% discount, the correct adjusting journal entry would be to recognize the expected amount of sales discounts.
The amount of sales discounts can be calculated by taking the eligible sales amount ($15,000) and applying the discount rate (1%). Therefore, the correct adjusting journal entry would be:
c) A debit to Sales Discounts for $150 (to increase the Sales Discounts account)
c) A credit to Allowance for Sales Discounts for $150 (to decrease the Allowance for Sales Discounts account)
This entry reflects Bava Corporation's expectation that customers will take advantage of the discount and pay the reduced amount.