Question

In: Accounting

Kimmel Company uses the net method of accounting for sales discounts. Kimmel also offers trade discounts...

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.

1. What is the effect of trade discounts on sales revenues and accounts receivable? Why?

2. How should Kimmel account for the accounts receivable factored on August 1, 2017? Why?

Solutions

Expert Solution

Trade Discount can help in increasing the sales revenue. It will lead and motivate the customers to buy the quantity in bulk as the trade discount shall be available only on bulk sales made. This Trade discount helps in reducing the price of the product for the customer or for the reseller thus helps in increasing the Sales revenue. Trade discount can also help in reducing the amount of Trade receivables.As we can apply the scheme to provide the Trade discount only if the cash payment is being made by the customer thus it can help us in recovery of debts immediately as soon as the sales are being made. This would be very beneficial for us. Trade Discount would also help in making publicity of the company and attracting huge number of customers to purchase from the company.

To account for the accounts receivable factored on August 1,2017, Kimmel should decrease accounts receivable by theamount of accounts receivable factored, increase cash by theamount received from the factor, and record a loss. Factoringof accounts receivable on a without recourse basis isequivalent to a sale. The difference between the cashreceived and the carrying amount of the receivables is aloss

ekkarill92 answered 2 years ago
Next > < Previous

Related Solutions

Hogan Company uses the net method of accounting for sales discounts. Hogan offers trade discounts to...
Hogan Company uses the net method of accounting for sales discounts. Hogan offers trade discounts to various groups of buyers. On August 1, 2021, Hogan factored some accounts receivable on a without recourse basis. Hogan incurred a finance charge. Hogan 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, 2021, and mature on September 30, 2022. Hogan’s operating cycle is less than...
Hogan Company uses the net method of accounting for sales discounts. Hogan offers trade discounts to various groups of buyers.
Hogan Company uses the net method of accounting for sales discounts. Hogan offers trade discounts to various groups of buyers. On August 1, 2021, Hogan factored some accounts receivable on a without recourse basis. Hogan incurred a finance charge.Hogan 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, 2021, and mature on September 30, 2022. Hogan’s operating cycle is less than one...
Hogan Company uses the net method of accounting for sales discounts. Hogan offers trade discounts to various groups of buyers.
  Hogan Company uses the net method of accounting for sales discounts. Hogan offers trade discounts to various groups of buyers.On August 1, 2021, Hogan factored some accounts receivable on a without recourse basis. Hogan incurred a finance charge.Hogan 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, 2021, and mature on September 30, 2022. Hogan’s operating cycle is less than one...
Either the gross method or net method may be used to record sales with cash discounts,...
Either the gross method or net method may be used to record sales with cash discounts, but the net method requires a period-end adjusting entry to estimate expected future sales discounts taken. True or False Under FIFO, the most recent costs are assigned to ending inventory.   True or False Installment accounts receivable is another name for aging of accounts receivable. True or False An employee earned $62,500 during the year working for an employer. The FICA tax rate for Social...
QUESTION 1 When the net price method is used to record credit sales, the sales discounts...
QUESTION 1 When the net price method is used to record credit sales, the sales discounts not taken account is reported as a(n) addition to sales returns and allowances on the income statement deduction from gross sales on the income statement deduction from selling expenses on the income statement addition to other revenue on the income statement QUESTION 2 After the company completes the bank reconciliation, it makes journal entries for adjustments it made to the bank statement balance it...
Buffalo Corporation uses a periodic inventory system and the gross method of accounting for purchase discounts....
Buffalo Corporation uses a periodic inventory system and the gross method of accounting for purchase discounts. (a) On July 1, (1) Buffalo purchased $33,000 of inventory, terms 1/10, n/30, FOB shipping point. (2) Buffalo paid freight costs of $1,105. (b) On July 3, Buffalo returned damaged goods and received credit of $3,300. (c) On July 10, Buffalo paid for the goods.
Exercise 8-11 (Algo) Trade and purchase discounts; the grossmethod and the net method compared [LO8-3]...
Exercise 8-11 (Algo) Trade and purchase discounts; the gross method and the net method compared [LO8-3] [The following information applies to the questions displayed below.] Tracy Company, a manufacturer of air conditioners, sold 140 units to Thomas Company on November 17, 2021. The units have a list price of $450 each, but Thomas was given a 20% trade discount. The terms of the sale were 2/10, n/30. Thomas uses a perpetual inventory system. Exercise 8-11 (Algo) Part 3 3. Prepare the journal entries to...
The Links Company uses the percent of sales method of accounting for uncollectible accounts receivable. During...
The Links Company uses the percent of sales method of accounting for uncollectible accounts receivable. During the current year, the following transactions occurred: Sept 7 Links Company determined that the $8,000 account receivable of the Rainier Company was uncollectible, and wrote it off. Oct 15 Links Company determined that the $3,500 account receivable of the Olympic Company was uncollectible and wrote it off. Nov 9 Rainier Company paid $6,000 of the amount owed to the Links Company. Links Company does...
A furniture supplier lists a dining room set for $1,800 and offers trade discounts of 25%,...
A furniture supplier lists a dining room set for $1,800 and offers trade discounts of 25%, and 10% to its retailers. The retailer's overhead expenses are 29% of cost and operating profit is 22% of the cost. After three months, the price is reduced to $1,614. What is the rate of markdown at the sale price? Your answer should be accurate to two decimal places. Markdown =$ What is the break-even price of the set? For full marks your answer(s)...
The Dent Sign Company uses the allowance method in accounting for uncollectible accounts. The company uses...
The Dent Sign Company uses the allowance method in accounting for uncollectible accounts. The company uses income statement approach to estimate uncollectible accounts. Past experience indicates that 1% of net credit sales will eventually be uncollectible. Selected account balances at December 31, 2017, and December 31, 2018, appear below: ​12/31/17​​12/31/18​ ​Net Credit Sales​$400,000​$500,000 ​Accounts Receivable​75,000​100,000 ​Allowance for Doubtful Accounts​5,000​? Instructions (a)​Record the following events in 2018. ​Aug.​10​Determined that the account of Ann Koch for $1,000 is uncollectible. ​Sept.​12​Determined that the...
ADVERTISEMENT
Subjects
ADVERTISEMENT
Latest Questions
ADVERTISEMENT