Question

Dunbar Company sells electronics and on January 4, 2016, purchased 3,500 television sets at $600 each, on credit. Terms of the purchase were 2/10, n/30. Dunbar paid for 25% of these sets on January 13 and the remaining 75% on February 1.

1.	Prepare the journal entries on Dunbar Company’s books, assuming that it uses the net price method to record its merchandise. (Dunbar uses a perpetual inventory system.)
2.	Next Level  Discuss the conceptual advantage of the net price method compared to the gross price method.

On November 16, 2016, Clear Glass Company borrowed $20,000 from First American Bank by issuing a 90-day, non-interest-bearing note. The bank discounted this note at 16% and remitted the difference to Clear Glass.

1.	Prepare the journal entries of Clear Glass to record the preceding information, the related calendar year-end adjusting entry, and payment of the note at maturity.
2.	Show how the preceding items would be reported on the December 31, 2016, balance sheet.
3.	Next Level What is Clear Glass Company’s effective interest rate?

Answer 1