On December 1, 2016, Lynch Incorporated sold $18,000 of merchandise with terms 2/10, n/EOM. On December 11, 2016, collections were made on sales originally billed for $12,000, and on December 31, 2016, additional collections on sales originally billed for $5,000 were received.
1. Prepare the journal entries to record the sale, collections, and any required year-end adjustments assuming that Lynch records accounts receivable and sales at
(a) The gross price and
(b) The net price.
2. Assume that Lynch’s customer does not have the available cash to pay Lynch within the discount period. How much interest should the customer be willing to pay for a ban to permit them to take advantage of the discount period (assume no additional costs to the loan)?
3. Explain why Lynch’s granting of cash (sales) discounts may improve cash flow.

  • CreatedOctober 05, 2015
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