Question

citron mechanical systems makes all sales on credit, with terms 1/15, n/30. during the year, the list price (prediscount) of services provided was $687,800. customers paid $482,400 (list price) of these sales within the discount period and the remaining $205,400 (list price) after the discount period. citron uses the net method of recording sales. required: 1. compute the amount of sales that citron recorded for the year. 2. compute the amount of cash that citron collected from these sales. feedback check my work 1. the gross method records the receivable at the \gross\ (or undiscounted) price. the discount is then recognized if payment is made within the discount period. if payment is not received until after the discount period, the full amount is paid. 2. the gross method records the receivable at the \gross\ (or undiscounted) price. the discount is then recognized if payment is made within the discount period. if payment is not received until after the discount period, the full amount is paid. 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. if an amount box does not require an entry, leave it blank. accounts receivable 687800 x sales revenue 687,800 x cash 687,800 x sales revenue 682,976 x accounts receivable 4,824 x feedback check my work 3. the gross method records the receivable at the \gross\ (or undiscounted) price. the discount is then recognized if payment is made within the discount period. if payment is not received until after the discount period, the full amount is paid.

Explanation:

Step1: Calculate discount on sales within discount period

The discount rate is 1% for sales paid within 15 days. Sales within the discount period have a list - price of $482,400. The discount amount for these sales is $482,400×0.01 = $4,824.

Step2: Record sales using net method

Under the net method, we record sales at the net amount. The list price of all sales is $687,800. The net amount of sales = $687,800−$4,824 = $682,976.

Step3: Record cash collection

The cash collected is also $682,976 because the amount recorded for sales under the net method is the amount we expect to collect (either customers take the discount and pay the net amount or pay the full amount and we record an adjustment for the forfeited discount).

Step4: Journal entry for sales

Debit Accounts Receivable for the net amount of sales, which is $682,976. Credit Sales Revenue for $682,976.

Step5: Journal entry for cash collection

Debit Cash for $682,976. Credit Accounts Receivable for $682,976. If some customers did not take the discount, we would have an additional entry to record the forfeited discount as revenue, but in this case, the cash collected is equal to the net - recorded sales amount.

Answer:

1. When recording sales using the net method:

• Debit: Accounts Receivable $682,976
• Credit: Sales Revenue $682,976

1. When recording cash collection:

• Debit: Cash $682,976
• Credit: Accounts Receivable $682,976