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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

Wilton, Inc. had net sales in 2017 of \(1,400,000. At December 31, 2017, before adjusting entries, the balances in selected accounts were Accounts Receivable \)250,000 debit, and Allowance for Doubtful Accounts $2,400 credit. If Wilton estimates that 8% of its receivables will prove to be uncollectible, prepare the December 31, 2017, journal entry to record bad debt expense.

(Bank Reconciliation and Adjusting Entries) Logan Bruno Company has just received the August 31, 2017, bank statement, which is summarized below.

Country National Bank

Disbursement

Receipts

Balance

Balance August 1

\(9,369

Deposits during August

\)32,200

\(41,569

Note collected for depositor, including \)40 interest

1,040

42,609

Checks cleared during August

34,500

8,109

Bank service charges

20

8,089

Balance, August 31

8,089

The general ledger Cash account contained the following entries for the month of August.

Cash

Balance, August 1

10,050

Disbursement in August

34,903

Receipt during August

35,000

Deposits in transit at August 31 are \(3,800, and checks outstanding at August 31 total \)1,050. Cash on hand at August 31 is \(310. The bookkeeper improperly entered one check in the books at \)146.50 which was written for $164.50 for supplies (expense); it cleared the bank during the month of August.

Instructions

(a) Prepare a bank reconciliation dated August 31, 2017, proceeding to a correct balance.

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

(c) What amount of cash should be reported in the August 31 balance sheet?

Computing Bad Debts and Preparing Journal Entries) The trial balance before adjustment of Taylor Swift Inc. shows the following balances.

Debit

Credit

Accounts Receivable

\(90,000

Allowance for Doubtful Accounts

1,750

Sales revenue (all on credit)

\)680,000

Instructions

Give the entry for estimated bad debts assuming that the allowance is to provide for doubtful accounts on the basis of (a) 4% of gross accounts receivable and (b) 5% of gross accounts receivable and Allowance for Doubtful Accounts has a $1,700 credit balance.

Jim Carrie Company shows a balance of \(181,140 in the Accounts Receivable account on December 31, 2017. The balance consists of the following.

Installment accounts due in 2018

\)23,000

Installment accounts due after 2018

34,000

Overpayment to vendors

2,640

Due from regular customers, of which $40,000 represents account pledge as security for a bank loan

79,000

Advances to employees

1,500

Advance to the subsidiary company (due in 2018)

81,000

Instructions

Illustrate how the information above should be shown on the balance sheet of Jim Carrie Company on December 31, 2017.

(Transfer of Receivables with Recourse) Ames Quartet Inc. factors receivables with a carrying amount of \(200,000 to Joffrey Company for \)160,000 on a with recourse basis.
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