Chapter 5, Problem 78E

To determine

(a)

Sales discounts:

The term $2/15,n/45$ means that if a customer is paying in

$15$ days then the payment will be after a discount of $2\%$ on the total value but if the customer is paying in $30$ days then the payment will be made in full which means no discount.

Gross method:

Under this method, the revenues are recorded at gross amount of sales i.e. without taking the effect of any discount at the time of sales.

The journal entries for Nevada for recording the sales at gross.

Answer to Problem 78E

The journal entries for sales transactions at gross amount is debiting the Accounts Receivable by $\$48,500$ and crediting sales by $\$48,500$ .

Explanation of Solution

The Nevada provides services at $\$48,500$ that is the list price. This is given in the question.

The journal entry for Nevada at the gross amount is as follows:

Date	Particulars	Debit ($)	Credit ($)
	Accounts Receivable...... Sales.......... (Record the sales of service)	$48,500$	$48,500$

To determine

(b)

Sales discounts:

The term $2/15,n/45$ means that if a customer is paying in $15$ days then the payment will be after a discount of $2\%$ on the total value but if the customer is paying in $30$ days then the payment will be made in full which means no discount.

Gross method:

Under this method, the revenues are recorded at gross amount of sales i.e. without taking the effect of any discount at the time of sales.

The journal entry for the receiving payment within $15$ days.

Answer to Problem 78E

The adjusting entry for recording the payment receivable of sales is by debiting cash by $\$47,530$, debiting sales discount by $\$970$ and crediting accounts receivable by $\$48,500$ .

Explanation of Solution

The Nevada provides services at $\$48,500$ that is the list price. The discount offered is $2\%$. This is given in the question.

The journal entry for Nevada is as follows:

Date	Particulars	Debit ($)	Credit ($)
	Cash......... Sales discount…...... Accounts Receivable..... (Record the receiving of revenue of service contact within the discount period of $15$ days)	$47,530$ $970$	$48,500$

$\begin{array}{c}\text{Amount of service payment received is}=\left\{48,500-\left(48,500\times 2\%\right)\right\}\\ =47,530\end{array}$.

To determine

(c)

Sales discounts:

The term $2/15,n/45$ means that if a customer is paying in $15$ days then the payment will be after a discount of $2\%$ on the total value but if the customer is paying in $30$ days then the payment will be made in full which means no discount.

Gross method:

Under this method, the revenues are recorded at gross amount of sales i.e. without taking the effect of any discount at the time of sales.

The journal entry for the receiving payment after $15$ days.

Answer to Problem 78E

The adjusting entry for recording the payment receivable of sales is by debiting cash by $\$48,500$ and crediting accounts receivable by $\$48,500$ .

Explanation of Solution

The Nevada provides services at $\$48,500$ that is the list price. The discount offered is $2\%$. This is given in the question.

The journal entry for Sims is as follows:

Date	Particulars	Debit ($)	Credit ($)
	Cash......... Accounts Receivable..... (Record the receiving of revenue of service contact within the discount period of $15$ days)	$48,500$	$48,500$

To determine

(d)

Sales discounts:

The term $2/15,n/45$ means that if a customer is paying in $15$ days then the payment will be after a discount of $2\%$ on the total value but if the customer is paying in $30$ days then the payment will be made in full which means no discount.

To calculate:

The amount of interest the customer of Nevada be willing to pay for taking benefit of discount period.

Answer to Problem 78E

The amount of interest will be $\$989.40$ .

Explanation of Solution

If the customer of Nevada did not pay the amount of $\$48,500$ within the period the sale discount i.e. paid after $45$ days. Due to this, the Nevada has to bear some interest expense for which Nevada charges the customer to compensate such interest charges.

$\begin{array}{c}\text{Interest Rate Calculation}=\frac{\text{Discount provided for the payment within }15\text{ days}}{\text{Amount Paid}}\\ =\frac{2\%}{98\%}\\ =2.04\%\end{array}$

$\begin{array}{c}\text{Interest Amount}=\$48,500\times 2.04\%\\ =\$989.40\end{array}$.