Question

On June 3, Ivanhoe Company sold to Chester Company merchandise having a sale price of $5,200 with terms of 2/10, n/60, f.o.b. shipping point. An invoice totaling $97, 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.

Prepare journal entries on the Ivanhoe Company books to record all the events noted above under each of the following bases.

(1)		Sales and receivables are entered at gross selling price.
(2)		Sales and receivables are entered at net of cash discounts.

(If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts. Credit account titles are automatically indented when the amount is entered. Do not indent manually.)

Prepare the journal entry under basis 2, assuming that Chester Company did not remit payment until July 29. (If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts. Credit account titles are automatically indented when the amount is entered. Do not indent manually.)

Answer 1

Base-1 Gross method:

Date	Account title and explanation	Debit	Credit
June 3	Accounts receivable	$5,200
	Sales revenue		$5,200
	[To record sales revenue]
June 12	Cash	$5,096
	Sales discount [$5,200 x 2%]	$104
	Accounts receivable		$5,200
	[To record collections from customers]

Base-2 Net method:

Date	Account title and explanation	Debit	Credit
June 3	Accounts receivable [$5,200 x 0.98]	$5,096
	Sales revenue		$5,096
	[To record sales revenue]
June 12	Cash	$5,096
	Accounts receivable		$5,096
	[To record collections from customers]

If received on July 29,

Date	Account title and explanation	Debit	Credit
June 29	Cash	$5,200
	Accounts receivable		$5,096
	Discount lost [$5,200 x 2%]		$104
	[To record collections from customers]