INTERM.ACCT.:REPORTING...-CENGAGENOWV2
3rd Edition
ISBN: 9781337909358
Author: WAHLEN
Publisher: CENGAGE L
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Chapter 6, Problem 4E
1.
To determine
Prepare
2.
To determine
Identify the amount of interest the customer must be willing to pay for loan to take the advantage of the discount period.
3.
To determine
Describe the manner by which granting of discount on cash sales by Company L will improve
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On December 1, 2019, Lynch Incorporated sold $21,000 of merchandise with terms 2/10, n/EOM. On December 11, 2019, collections were made on sales originally billed for $10,000, and on December 31, 2019, additional collections on sales originally billed for $10,000 were received.
Required:
1.
Prepare the journal entries to record the sale, collections, and any required year-end adjustments assuming that Lynch records accounts receivable and sales at (a) the gross price and (b) the net price.
2.
Next Level Assume that Lynch’s customer does not have the available cash to pay Lynch within the discount period. How much interest should the customer be willing to pay for a loan to permit them to take advantage of the discount period (assume no additional costs to the loan)?
3.
Next Level Explain why Lynch’s granting of cash (sales) discounts may improve cash flow.
On December 1, 2019, Lynch Incorporated sold $17,000 of merchandise with terms 2/10, n/EOM. On December 11, 2019, collections were made on sales originally billed for $10,000, and on December 31, 2019, additional collections on sales originally billed for $6,000 were received.
Required:
1.
Prepare the journal entries to record the sale, collections, and any required year-end adjustments assuming that Lynch records accounts receivable and sales at (a) the gross price and (b) the net price.
2.
Next Level Assume that Lynch’s customer does not have the available cash to pay Lynch within the discount period. How much interest should the customer be willing to pay for a loan to permit them to take advantage of the discount period (assume no additional costs to the loan)?
3.
Next Level Explain why Lynch’s granting of cash (sales) discounts may improve cash flow.
CHART OF ACCOUNTS
Lynch Incorporated
General Ledger
ASSETS
111
Cash
121
Accounts Receivable…
Eastman Corporation sells merchandise with a list price of $13,000 on February 1, 2019, with terms of 1/10, n/30. On February 10, 2019, payment was received on merchandise originally billed for $7,500, and the balance due was received on March 1, 2019.
Required:
1.
Prepare the journal entries to record the preceding information assuming that Eastman records accounts receivable and sales at (a) the gross price and (b) the net price.
2.
Next Level What implied annual interest rate is Eastman’s customer incurring by failing to take the cash (sales) discount? (Assume a 365-day year.)
3.
Next Level Which method—recording accounts receivable at the gross price or net price—is theoretically superior? Why?
Chapter 6 Solutions
INTERM.ACCT.:REPORTING...-CENGAGENOWV2
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