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Chapter 7: 6E (page 365)

Presented below is information from Perez Computers Incorporated.

July 1 Sold \(20,000 of computers to Robertson Company with terms 3/15, n/60. Perez uses the gross method to record cash discounts. Perez estimates allowances of \)1,300 will be honored on these sales.

10 Perez received payment from Robertson for the full amount owed from the July transactions.

17 Sold $200,000 in computers and peripherals to The Clark Store with terms of 2/10, n/30.

30 The Clark Store paid Perez for its purchase of July 17.

Instructions

Prepare the necessary journal entries for Perez Computers.

Short Answer

Expert verified

Debit and credit columns of journal totals$440,000.

Step by step solution

01

Definition of Gross Method

A method used to record journal entry for goods sold on cash discount terms, under which gross amount of sales is reported, is known as gross method. Under this method, discount is accounted for separately when a cash payment is received.

02

Journal entries

Date

Accounts and Explanation

Debit $

Credit $

July 1

Accounts receivables

$20,000

Sales

$20,000

(To record the credit sales made by the business entity)

July 10

Cash

$19,400

Discount allowed

$600

Accounts receivables

$20,000

(To record the cash received from receivables)

July 17

Accounts receivables

$200,000

Sales revenue

$200,000

(To record the sales made on account)

July 30

Cash

$200,000

Accounts receivables

$200,000

(To record the cash received from receivables)

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Most popular questions from this chapter

Recent financial statements of General Mills, Inc. report net sales of \(12,442,000,000. Accounts receivable are \)912,000,000 at the beginning of the year and $953,000,000 at the end of the year. Compute General Mills’ accounts receivable turnover. Compute General Mills’ average collection period for accounts receivable in days.

On July 1, 2017, Moresan Company sold special-order merchandise on credit and received in return an interest-bearing note receivable from the customer. Moresan will receive interest at the prevailing rate for a note of this type. Both the principal and interest are due in one lump sum on June 30, 2018.

On September 1, 2017, Moresan sold special-order merchandise on credit and received in return a zero-interest-bearing note receivable from the customer. The prevailing rate of interest for a note of this type is determinable. The note receivable is due in one lump sum on August 31, 2019.

Moresan also has significant amounts of trade accounts receivable as a result of credit sales to its customers. On October 1, 2017, some trade accounts receivable were assigned to Indigo Finance Company on a non-notification (Moresan handles collections) basis for an advance of 75% of their amount at an interest charge of 8% on the balance outstanding.

On November 1, 2017, other trade accounts receivable were sold without recourse. The factor withheld 5% of the trade accounts receivable factored as protection against sales returns and allowances and charged a finance charge of 3%.

Instructions

(a) How should Moresan determine the interest revenue for 2017 on the:

(1) Interest-bearing note receivable? Why?

(2) Zero-interest-bearing note receivable? Why?

On January 1, 2017, Lombard Co. sells property for which it had paid \(690,000 to Sargent Company, receiving in return Sargent’s zero-interest-bearing note for \)1,000,000 payable in 5 years. What entry would Lombard make to record the sale, assuming that Lombard frequently sells similar items of property for a cash sales price of $640,000?

On September 30, 2016, Rolen Machinery Co. sold a machine and accepted the customer’s zero-interest-bearing note. Rolen normally makes sales on a cash basis. Since the machine was unique, its sales price was not determinable using Rolen’s normal pricing practices.

After receiving the first of two equal annual installments on September 30, 2017, Rolen immediately sold the note with recourse. On October 9, 2018, Rolen received notice that the note was dishonored, and it paid all amounts due. At all times prior to default, the note was reasonably expected to be paid in full.

Instructions

(1) How should Rolen determine the sales price of the machine?

(2) How should Rolen report the effects of the zero-interest-bearing note on its income statement for the year ended December 31, 2016? Why is this accounting presentation appropriate?

Jim Carrie Company shows a balance of \(181,140 in the Accounts Receivable account on December 31, 2017. The balance consists of the following.

Installment accounts due in 2018

\)23,000

Installment accounts due after 2018

34,000

Overpayment to vendors

2,640

Due from regular customers, of which $40,000 represents account pledge as security for a bank loan

79,000

Advances to employees

1,500

Advance to the subsidiary company (due in 2018)

81,000

Instructions

Illustrate how the information above should be shown on the balance sheet of Jim Carrie Company on December 31, 2017.
See all solutions

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