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Chapter 7: 2BE (page 363)

Restin Co. uses the gross method to record sales made on credit. On June 1, 2017, it made sales of $50,000 with terms 3/15, n/45. On June 12, 2017, Restin received full payment for the June 1 sale. Prepare the required journal entries for Restin Co.

Short Answer

Expert verified

The business entity will receive $48,500 after allowing a discount of 3%.

Step by step solution

01

Definition of Cash Discount Allowed

Reduction in cash payment allowed by the lender or seller of goods for motivating the borrower to make early payment is known as cash discount allowed.

02

Journal entries under gross method

Date

Accounts and Explanation

Debit $

Credit $

1 June 2017

Accounts receivables

$50,000

Sales revenue

$50,000

12 June 2017

Cash

$48,500

Discount allowed (3% of $50,000)

$1,500

Accounts receivables

$50,000

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Most popular questions from this chapter

(Petty Cash) The petty cash fund of Fonzarelli鈥檚 Auto Repair Service, a sole proprietorship, contains the following.

1. Coins and Currency

\(15.20

2. Postage Stamps

2.90

3. An I.O.U from Cunningham, an employee, for cash advance

40

4. Check payable to Fonzarelli鈥檚 Auto Repair from Pottsie Weber, an employee, marked NSF

34

5. Vouchers for the following:

Stamps

20

Two Rose Bowl tickets for Nick Fonzarelli

170

Printer cartridge

14.35

204.35

\)296.45

The general ledger account Petty Cash has a balance of $300.

Instructions

Prepare the journal entry to record the reimbursement of the petty cash fund.

(Transfer of Receivables with Recourse) Beyonc茅 Corporation factors \(175,000 of accounts receivable with Kathleen Battle Financing, Inc. on a with recourse basis. Kathleen Battle Financing will collect the receivables. The receivables records are transferred to Kathleen Battle Financing on August 15, 2017. Kathleen Battle Financing assesses a finance charge of 2% of the amount of accounts receivable and also reserves an amount equal to 4% of accounts receivable to cover probable adjustments.

Instructions

(a) What conditions must be met for a transfer of receivables with recourse to be accounted for as a sale?

(b) Assume the conditions from part (a) are met. Prepare the journal entry on August 15, 2017, for Beyonc茅 to record the sale of receivables, assuming the recourse obligation has a fair value of \)2,000.

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.

(Assigning Accounts Receivable) On April 1, 2017, Rasheed Company assigns \(400,000 of its accounts receivable to the Third National Bank as collateral for a \)200,000 loan due July 1, 2017. The assignment agreement calls for Rasheed to continue to collect the receivables. Third National Bank assesses a finance charge of 2% of the accounts receivable, and interest on the loan is 10% (a realistic rate of interest for a note of this type).

Instructions

(a) Prepare the April 1, 2017, journal entry for Rasheed Company.

(b) Prepare the journal entry for Rasheed鈥檚 collection of $350,000 of the accounts receivable during the period from April 1, 2017, through June 30, 2017.

(c) On July 1, 2017, Rasheed paid Third National all that was due from the loan it secured on April 1, 2017. Prepare the journal entry to record this payment.

On October 1, 2017, Chung, Inc. assigns \(1,000,000 of its accounts receivable to Seneca National Bank as collateral for a \)750,000 note. The bank assesses a finance charge of 2% of the receivables assigned and interest on the note of 9%. Prepare the October 1 journal entries for both Chung and Seneca.
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