Question

Jupiter Company sells goods to Danone Inc. by accepting a note receivable on January 2, 2017. The goods have a sales price of $610,000 (cost of $500,000). The terms are net 30. If Danone pays within 5 days, however, it receives a cash discount of $10,000. Past history indicates that the cash discount will be taken. On January 28, 2017, Danone makes payment to Jupiter for the full sales price.
Instructions:

(a) Prepare the journal entry(ies) to record the sale and related cost of goods sold for Jupiter Company on January 2, 2017, and the payment on January 28, 2017. Assume that Jupiter Company records the January 2, 2017, transaction using the net method.
(b) Prepare the journal entry(ies) to record the sale and related cost of goods sold for Jupiter Company on January 2, 2017, and the payment on January 28, 2017. Assume that Jupiter Company records the January 2, 2017, transaction using the gross method.

Answer 1

Answer:

Explanation:

a. Net method

The journal entries are shown below:

January 2, 2017

Notes receivable A/c Dr  $600,000    ($610,000 - $10,000)

       To Sales revenue $600,000

(Being goods are sold on credit)

Cost of goods sold A/c Dr $500,000

        To Inventory A/c $500,000

(Being the cost of goods sold is recorded)

On January 28, 2017

Cash A/c Dr $610,000

     To Notes receivable A/c  $600,000

     To Sales discount A/c $10,000

(Being cash received is recorded)

b. Gross method

The journal entries are shown below:

January 2, 2017

Notes receivable A/c Dr  $600,000    ($610,000 - $10,000)

       To Sales revenue $600,000

(Being goods are sold on credit)

Cost of goods sold A/c Dr $500,000

        To Inventory A/c $500,000

(Being the cost of goods sold is recorded)

On January 28, 2017

Cash A/c Dr $610,000

     To Notes receivable A/c  $600,000

(Being cash received is recorded)