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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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( Appendix 5A) Sales Discount Recorded at Gross

Nevada Company provided services with a list price of $48,500 to Small Enterprises with terms 2/15, n/45. Nevada records sales at gross.

Required:

1. Prepare the entries to record this sale in Nevada’s journal.

2. Prepare the entry for Nevada’s journal to record receipt of cash in payment for the sale within the discount period.

3. Prepare the entry for Nevada’s journal to record receipt of cash in payment for the sale after the discount period.

4. Assume that Nevada’s customer does not have the available cash to pay Nevada 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 (assuming no additional costs to the loan)?

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.

Explanation

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 Particula
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.

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.

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.

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