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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

(Expected Cash Flows) On December 31, 2017, Iva Majoli Company borrowed \(62,092 from Paris Bank, signing a 5-year, \)100,000 zero-interest-bearing note. The note was issued to yield 10% interest. Unfortunately, during 2019, Majoli began to experience financial difficulty. As a result, at December 31, 2019, Paris Bank determined that it was probable that it would receive back only $75,000 at maturity. The market rate of interest on loans of this nature is now 11%.

Instructions

(a) Prepare the entry to record the issuance of the loan by Paris Bank on December 31, 2017.

(b) Prepare the entry, if any, to record the impairment of the loan on December 31, 2019, by Paris Bank.

On December 31, 2017, Firth Company borrowed \(62,092 from Paris Bank, signing a 5-year, \)100,000 zero-interest-rate note. The note was issued to yield 10% interest. Unfortunately, during 2019, Firth began to experience financial difficulty. As a result, at December 31, 2019, Paris Bank determined that it was probable that it would collect only $75,000 at maturity. The market rate of interest on loans of this nature is now 11%.

Instructions

(a) Prepare the entry (if any) to record the impairment of the loan on December 31, 2019, by Paris Bank.

(b) Prepare the entry on March 31, 2020, if Paris learns that Firth will be able to repay the loan under the original terms.

(Bank Reconciliation and Adjusting Entries) Presented below is information related to Haselhof Inc. Balance per books at October 31, \(41,847.85; receipts \)173,523.91; disbursements \(164,893.54. Balance per bank statement November 30, \)56,274.20.

The following checks were outstanding at November 30.

1224

\(1,635.29

1230

2,468.30

1232

2,125.15

1233

482.17

Included with the November bank statement and not recorded by the company were a bank debit memo for \)27.40 covering bank charges for the month, a debit memo for \(372.13 for a customer’s check returned and marked NSF, and a credit memo for \)1,400 representing bond interest collected by the bank in the name of Haselhof Inc. Cash on hand at November 30 recorded and awaiting deposit amounted to $1,915.40.

Instructions

(a) Prepare a bank reconciliation (to the correct balance) at November 30, for Haselhof Inc. from the information above.

(b) Prepare any journal entries required to adjust the cash account at November 30.

(Transfer of Receivables with Recourse) Ames Quartet Inc. factors receivables with a carrying amount of \(200,000 to Joffrey Company for \)160,000 on a with recourse basis.

Kimmel Company uses the net method of accounting for sales discounts. Kimmel also offers trade discounts to various groups of buyers.

On August 1, 2017, Kimmel sold some accounts receivable on a without recourse basis. Kimmel incurred a finance charge.

Kimmel also has some notes receivable bearing an appropriate rate of interest. The principal and total interest are due at maturity. The notes were received on October 1, 2017, and mature on September 30, 2019. Kimmel’s operating cycle is less than one year.

Instructions

(a) (1) Using the net method, how should Kimmel account for the sales discounts at the date of sale? What is the rationale for the amount recorded as sales under the net method?

(2) Using the net method, what is the effect on Kimmel’s sales revenues and net income when customers do not take the sales discounts?

(b) What is the effect of trade discounts on sales revenues and accounts receivable? Why?

(c) How should Kimmel account for the accounts receivable factor on August 1, 2017? Why?

(d) How should Kimmel account for the note receivable and the related interest on December 31, 2017? Why?
See all solutions

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