Question

11. On July 4, Freedom sold $87,000 of inventory items on credit with the terms 3/10, net 30. Payment on $47,000 of the sales was received on July 10 and the remaining payment of $40,000 sales was received on July 30. Assuming Freedom uses the net method of accounting for sales discounts, record the entry on July 30.

12. On May 15, Brandle sold $75,000 of inventory items on credit with the terms 2/15, net 30. Payment on $50,000 of the sales was received on May 28 and the remaining payment was received on June 12. Assuming Brandle uses the gross method of accounting for sales discounts, what is the journal entry made on May 28?

Answer 1

Solution:

Problem 11 ---

Net Method is a way to record purchase or sales with a cash discount. The net method assumes that customer always takes advantage of the discounted cash price and record the sale or purchase at the discounted price.

Date	General Journal	Debit	Credit
July.30	Cash	$38,800
	Discount Lost ($40,000*3)	$1,200
	Accounts Receivable		$40,000
	(Since the payment is received after the 10 days from the date of sale. Company is not entitled to avail the discount on early payment at 3% and the company records the discount lost)

Problem 12

Under the gross method, the purchases/sales are recorded at its cost/sales price without decreasing the amount of probable purchase/cash discount. Later on when the company pays within the terms of availing cash discount, the discount is recorded separately in the entry on the date of payment done.

Part 1 – Journal Entry

Date	General Journal	Debit	Credit
May.28	Cash (50,000*98%)	49,000
	Cash Discount (50,000*2%)	1,000
	Accounts Receivable		$50,000
	(Since the payment is made within 15 days from the date of sale. Company is entitled to avail the discount on early payment at 2%)