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5E

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Intermediate Accounting (Kieso)
Found in: Page 365

Short Answer

On June 3, Arnold Company sold to Chester Company merchandise having a sale price of $3,000 with terms of 2/10, n/60, f.o.b. shipping point. An invoice totaling $90, terms n/30, was received by Chester on June 8 from John Booth Transport Service for the freight cost. On June 12, the company received a check for the balance due from Chester Company

Instructions

(a) Prepare journal entries on the Arnold Company books to record all the events noted above under each of the following bases.

(1) Sales and receivables are entered at gross selling price.

(2) Sales and receivables are entered at net of cash discounts.

(b) Prepare the journal entry under basis 2, assuming that Chester Company did not remit payment until July 29.

1. Under gross method, sales are recorded at gross amount.

2. Under net method, sales are recorded at net discount.

See the step by step solution

Step by Step Solution

Definition of Discount Forfeited

If the customer makes payment after the specified period for a discount, the discount account is credited in the journal entry, known as discount forfeited.

Journal Entries Under Gross Method

Date

Accounts and Explanation

Debit $

Credit $

3 June

Accounts receivables

$3,000

Sales

$3,000

(To record the sales made on account)

12 June

Cash

$2,940

Discount allowed

$60

Accounts receivables

$3,000

(To record the cash payment received for credit sales)

Journal Entries Under Net Method

Date

Accounts and Explanation

Debit $

Credit $

3 June

Accounts receivables

$2,940

Sales

$2,940

(To record the sales made on account)

12 June

Cash

$2,940

Accounts receivables

$2,940

(To record the cash payment received for credit sales)

Journal Entry When Payment is Not Remitted

Date

Accounts and Explanation

Debit $

Credit $

29 July

Cash

$3,000

Accounts receivables

$2,940

Sales discount forfeited

$60

(To record the cash payment received for credit sales and discount forfeited)

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