Question

On June 3, Headland Company sold to Chester Company merchandise having a sale price of $4,000 with terms of 4/10, n/60, f.o.b. shipping point. An invoice totaling $95, terms n/30, was received by Chester on June 8 from John Booth Transport Service for the freight cost. On June 12, the company received a check for the balance due from Chester Company.

Prepare journal entries on the Headland Company books to record all the events noted above under each of the following bases.

(1)		Sales and receivables are entered at gross selling price.
(2)		Sales and receivables are entered at net of cash discounts.

(If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts. Credit account titles are automatically indented when the amount is entered. Do not indent manually.)

Prepare the journal entry under basis 2, assuming that Chester Company did not remit payment until July 29.

Answer 1

Answer:

Note :Seller sold goods with term F.O.B shipping point, which means freight cost should be paid by buyer.

(1) Sales and receivables are entered at gross selling price.

Journal Entries

Date	Accounts Titles & Explanation	Debit($)	Credit($)
June 3	Accounts receivables	4000
	Sales		4000
	(To record goods sold to Chester Company)
June 12	Cash	3840
	Discount on Sales ($4000 * 4 %)	160
	Accounts receivables		4000
	(To record collection & discount on account of goods sold)

(2) Sales and receivables are entered at net of cash discounts.

Journal Entries

Date	Accounts Titles & Explanation	Debit($)	Credit($)
June 3	Accounts receivables	3840
	Sales		3840
	(To record sales net of cash discounts )
June 12	Cash	3840
	Accounts receivables		3840
	(To record collection on account of goods sold )

The journal entry on July 29 would be:
Cash	4000
Accounts Receivable-Chester Company		3840
Sales Discounts Forfeited		160	=4000*4%
(To record payment received)