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Intermediate Accounting: Reporting...

3rd Edition
James M. Wahlen + 2 others
ISBN: 9781337788281

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BuyFindarrow_forward

Intermediate Accounting: Reporting...

3rd Edition
James M. Wahlen + 2 others
ISBN: 9781337788281
Textbook Problem
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Cash Discounts Lambert Corporation sells merchandise at a list price of $70,000 with accompanying terms of 2/10, n/30 on December 8,2019. By December 18,2019, Lambert had collected from customers for merchandise originally billed at $46,000. By December 31, 2019, additional collections had been received on sales originally billed for $18,000, and sales returns and allowances of $1,500 had been granted by Lambert. By January 15, 2020, all the remaining balances due had been collected.

Required:

  1. 1. Prepare the journal entries to record each of the following items assuming that Lambert records accounts receivable and sales at the gross price:
    1. a. the sale of the merchandise
    2. b. collections received by December 18, 2019
    3. c. collections received by December 31, 2019
    4. d. sales returns and allowances (net estimated in the period of sale)
    5. e. any required year-end adjustments
    6. f. any January 1, 2020, rowing entries
    7. g. the collections received by January 15, 2020
  2. 2. Prepare the journal entries to record each of the following items assuming that Lambert records accounts receivable and sales at the net price:
    1. a. the sale of the merchandise
    2. b. collections received by December 18, 2019
    3. c. collections received by December 31, 2019
    4. d. sales returns and allowances (not estimated in the period of sale)
    5. e. any required year-end adjustments
    6. f. any January 1, 2020, reversing entries
    7. g. the collections received by January 15, 2020
  3. 3. Calculate the accounts receivable balance that would be reported on Lambert’s December 31, 2019, balance sheet if accounts receivable and sales were recorded at (a) the gross price and (b) the net price.

1.

To determine

Prepare necessary journal entries for the given transaction assuming that accounts receivable and sales are recorded at gross price by the Company L.

Explanation

Account receivable:

The amount of money to be received by a company for the sale of goods and services to the customers is referred to as account receivable.

DateAccount Titles and explanationDebit ($)Credit ($)
 Accounts receivable70,000 
      Sales revenue 70,000
 (To record the sale made )  

Table (1)

  • Accounts receivable is an asset and there is an increase in the value of asset. Hence, debit the accounts receivable by $70,000.
  • Sales revenue is component of stockholder’s equity and there is an increase in the value of revenue. Hence, credit the sales revenue by $70,000.
DateAccount Titles and explanationDebit ($)Credit ($)
 Cash (1)45,080 
 Sales revenue ($46,000×2100)920 
      Accounts receivable 46,000
 (To record the collection received on December 18, 2019)  

Table (2)

  • Cash is an asset and there is an increase in the value of asset. Hence, debit the cash by $45,080.
  • Sales revenue is component of stockholder’s equity and there is a decrease in the value of revenue. Hence, debit the sales revenue by $920.
  • Accounts receivable is an asset and there is an increase in the value of asset. Hence, debit the accounts receivable by $46,000.
DateAccount Titles and explanationDebit ($)Credit ($)
 Cash18,000 
      Accounts receivable 18,000
 (To record the additional collection on the sales made)  

Table (3)

  • Cash is an asset and there is an increase in the value of asset. Hence, debit the cash by $18,000.
  • Accounts receivable is an asset and there is an increase in the value of asset. Hence, debit the accounts receivable by $18,000.
DateAccount Titles and explanationDebit ($)Credit ($)
 Return liability1,500 
      Accounts receivable 1,500
 (To record the sales returns on credit  merchandise)  

Table (4)

  • Return liability is a liability and there is a decrease in the value of liability. Hence, debit the liability by $1,500.
  • Accounts receivable is an asset and there is a decrease in the value of asset. Hence, credit the asset by $1,500

2.

To determine

Prepare necessary journal entries for the given transaction assuming that accounts receivable and sales are recorded at net price by the Company L.

3.

To determine

Compute the account receivable balance that will be reported on the balance sheet Company L’s as on December 31, 2019, when the accounts receivable and sales are recorded at

(a) Gross price

(b) Net price

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