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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 Discounts on Sales and Purchases

Helmkamp Products sells golf clubs and accessories to pro shops. Gross sales in 2019 were $2,850,000 (Helmkamp’s list price) on terms 2/15, n/45. Customers paid for $2,000,000(Helmkamp’s list price) of the merchandise within the discount period and the remaining $850,700 after the end of the discount period. Helmkamp expects its customers to pay within the discount period.

Required:

1. Determine how much cash was collected from sales.

2. Assuming all payments were received before year end, how much sales revenue will be reported on the income statement?

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 45 days then the payment will be made in full which means no discount.

To calculate:

The amount of cash to be collected from sales.

Explanation

The Helmkamp Products sold golf clubs and accessories for $28,50,700 and offered the discount for the payment i.e. if it is received in 15 days and the discount for the early payment is 2%. This is given in the question. The payment of $20,00,000 received in the discount period and rest i.e. $8,50,700 afterwards

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 45 days then the payment will be made in full which means no discount.

To calculate:

The sales revenue to be recognized on the income statement.

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