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Cornerstones of Financial Accounti...

4th Edition
Jay Rich + 1 other
ISBN: 9781337690881

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Cornerstones of Financial Accounti...

4th Edition
Jay Rich + 1 other
ISBN: 9781337690881
Textbook Problem
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Effects of Sales Discounts

Citron Mechanical Systems makes all sales on credit, with terms 1/15, n/30. During 2019, the list price (prediscount) of services provided was $687,500. Customers paid $482,000 (list price) of these sales within the discount period and the remaining $250,500 (list price) after the discount period. Citron uses the gross method of recording sales.

Required:

1. Compute the amount of sales that Citron recorded for 2019.

2. Compute the amount of cash that Citron collected from these sales.

3. Assuming the net method was used for all sales, prepare a summary journal entry to record these sales and a second summary entry to record the cash collected.

To determine

(a)

Sales discounts:

The term

1/15,n/30 means that if a customer is paying in 15 days then the payment will be after a discount of 1% 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.

Sale revenue recognition and the collection from the sales revenue are two different things because the sale revenue includes outstanding sales whereas the collection from the sales excludes advancement payments.

To compute:

The calculation of sales revenue for 2019.

Explanation

The Citron Mechanical Systems sold on credit for $6,87,500 and offered the discount for the payment i.e. if it is received in 10 days and the discount for the early payment is 5%. It is estimated that due to this scheme, the payment of about $4,82,000 will be

To determine

(b)

Sales discounts:

The term 1/15,n/30 means that if a customer is paying in 15 days then the payment will be after a discount of 1% 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.

Sale revenue recognition and the collection from the sales revenue are two different things because the sale revenue includes outstanding sales whereas the collection from the sales excludes advancement payments.

To calculate:

The amount of cash collected from these sales.

To determine

(c)

Sales discounts:

The term 1/15,n/30 means that if a customer is paying in 15 days then the payment will be after a discount of 1% 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.

Sale revenue recognition and the collection from the sales revenue are two different things because the sale revenue includes outstanding sales whereas the collection from the sales excludes advancement payments.

The journal entries for recording sales and cash collected as per net method.

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