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Cornerstones of Financial Accounti...

4th Edition
Jay Rich + 1 other
ISBN: 9781337690881

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BuyFindarrow_forward

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

Smithson Products sells legal supplies to law firms. Gross sales in 2019 were $2,750,600 (Smithson’s list price) on terms 3/10, n/30. Customers paid for $2,427,900 (Smithson’s list price) of the merchandise within the discount period and the remaining $322,700 after the end of the discount period. Smithson records purchases and sales using the gross method to account for sales discounts.

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 3/10,n/30 means that if a customer is paying in 10 days then the payment will be after a discount of 3% 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 cash to be collected from sales.

Explanation

The Smithson Products ells legal supplies for $27,50,600 and offered the discount for the payment i.e. if it is received in 10 days and the discount for the early payment is 3%. This is given in the question. The payment of $24,27,900 received in the discount period and rest i.e. $3,22,700 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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