Question

Citron Mechanical Systems makes all sales on credit, with terms 1/15, n/30. During 2019, the list price (prediscount) of services provided was $686,000. Customers paid $454,000 (list price) of these sales within the discount period and the remaining $232,000 (list price) after the discount period. Citron uses the gross method of recording sales.
Required:

1. Compute the amount of sales that Citron recorded for 2019.
2. Compute the amount of cash that Citron collected from these sales.
3. Assuming the net method was used for all sales, prepare a summary journal entry to record these sales and a second summary entry to record the cash collected.

Answer 1

Answer:

1. $686,000

2. $681,460

3. 679,140

Explanation:

Customers paid $454,000 (list price) of these sales within the discount period which implies that they qualified for 1% discount and cash received was 0.99 x 454,000 = $449,460

and the remaining $232,000 (list price) after the discount period. which implies that the full amount of these sales were received in cash.

1. The amount of sales Citron recorded in 2019 is the total amount of $686,000 since Citron uses the gross method of recording sales.

2. The amount of cash that Citron collected from these sales is 0.99 x 454,000 = $449,460 + $232,000 = $681,460

3. Assuming the net method was used for all sales, prepare a summary journal entry to record these sales

Net method assumes that all customers will qualify for discount which is 0.99 x 686,000 = 679,140

Dr. Account Receivable....679,140

Cr. Sales............................................679,140

and a second summary entry to record the cash collected.

Dr. Cash.....................679,140

Cr. Account Receivable.......679,140