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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

Dold Acrobats lent \(16,529 to Donaldson, Inc., accepting Donaldson鈥檚 2-year, \)20,000, zero-interest-bearing note. The implied interest rate is 10%. Prepare Dold鈥檚 journal entries for the initial transaction, recognition of interest each year, and the collection of $20,000 at maturity.

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.

(Transfer of Receivables without Recourse) JFK Corp. factored $300,000 of accounts receivable with LBJ Finance Corporation on a without recourse basis on July 1, 2017. The receivables records are transferred to LBJ Finance, which will receive the collections. LBJ Finance assesses a finance charge of 1陆% of the amount of accounts receivable and retains an amount equal to 4% of accounts receivable to cover sales discounts, returns, and allowances. The transaction is to be recorded as a sale.

Instructions

(a) Prepare the journal entry on July 1, 2017, for JFK Corp. to record the sale of receivables without recourse.

(b) Prepare the journal entry on July 1, 2017, for LBJ Finance Corporation to record the purchase of receivables without recourse.

(Bank Reconciliation and Adjusting Entries) The cash account of Aguilar Co. showed a ledger balance of \(3,969.85 on June 30, 2017. The bank statement as of that date showed a balance of \)4,150. Upon comparing the statement with the cash records, the following facts were determined.

1. There were bank service charges for June of \(25.

2. A bank memo stated that Bao Dai鈥檚 note for \)1,200 and interest of \(36 had been collected on June 29, and the bank had made a charge of \)5.50 on the collection. (No entry had been made on Aguilar鈥檚 books when Bao Dai鈥檚 note was sent to the bank for collection.)

3. Receipts for June 30 for \(3,390 were not deposited until July 2.

4. Checks outstanding on June 30 totaled \)2,136.05.

5. The bank had charged the Aguilar Co.鈥檚 account for a customer鈥檚 uncollectible check amounting to \(253.20 on June 29.

6. A customer鈥檚 check for \)90 (as payment on the customer鈥檚 Accounts Receivable) had been entered as \(60 in the cash receipts journal by Aguilar on June 15.

7. Check no. 742 in the amount of \)491 had been entered in the cash journal as \(419, and check no. 747 in the amount of \)58.20 had been entered as $582. Both checks had been issued to pay for purchases and were payments on Aguilar鈥檚 Accounts Payable.

Instructions

(a) Prepare a bank reconciliation dated June 30, 2017, proceeding to a correct cash balance.

(b) Prepare any entries necessary to make the books correct and complete.

Define a 鈥渃ompensating balance.鈥� How should a compensating balance be reported?
See all solutions

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