E7.5 (LO 2) (Recording Sales Gross and Net) On June 3, Arnold Company sold to Chester Company merchandise having a sale price of $3,000 with terms of 2/10, n/60, f. o.b. shipping pointAn invoice totaling $90, terms n/30, was received by Chester on June 8 from John Booth Transport Service for the freight cost. On June 12, the company received a check for the balance due from Chester Company.

See explanation

Explanation:

Requirement 1 (A)

If the sales and receivables are at gross selling price, the discount will not be deducted from the selling amount during the recording process.

i) June 3. Debit    Accounts receivable       $3,000

               Credit            Sales revenue                           $3,000

Since the cost of goods sold is not given, it is assumed that the company uses periodic inventory system. Sales inventory on account with a term of 2/10, n/60. It means that if Chester pays the bill within 10 days, the seller will give 2% discount to the buyer. However, the bill has to be paid within 60 days.

ii) June 12.  Debit    Cash/Bank          $2,940

                  Debit     Sales discount           60

                 Credit               Accounts receivable          $3,000

As Chester company pays the bill within 10 days, according to the terms and conditions, Chester receives sales discount of $3,000 × 2% = $60.

Requirement 1 (B)

If the sales and receivables are at net selling price, the discount will be deducted from the selling amount during the recording process.

i) June 3. Debit    Accounts receivable       $2,940

               Credit            Sales revenue                           $2,940

Note: Sales are on account with a term of 2/10, n/60. In net selling method, the discount was deducted during the selling time. If Chester pays the bill within 10 days, the seller will give 2% discount to the buyer. If the company fails to provide, the discount will become forfeited.

ii) June 12.  Debit    Cash/Bank          $2,940

                  Credit               Accounts receivable          $2,940

As Chester company pays the bill within 10 days, according to the terms and conditions, Chester receives sales discount.

Requirement 2

As Chester company has paid the bill on July 29, the company are not getting the discount from Arnold Company. To record the payment entry -

a) Gross selling method -

July 29. Debit    Cash/Bank          $3,000

                  Credit               Accounts receivable          $3,000

No discount was provided.

b) Net selling method -

July 29. Debit    Cash/Bank          $3,000

                  Credit               Accounts receivable          $2,940

                  Credit               Sales discount forfeited            60

As Chester failed to pay within discount period, sales discount was forfeited.

they work in some type of way

answernaturalistic observation;