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ceived. Required: 1. Prepare the journe/ entries to record the sale, collections, and any required year-end adjustments assuming that Lynch records accounts receivable and sales
ceived. Required: 1. Prepare the journe/ 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. Next Level 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 loan to permit them to take advantage of the discount period (assume no additional costs to the loan)? 3. Next Level Explain why Lynch's granting of cash (sales) discounts may improve cash flow. costs to the loan)? The customer would have to pay Lynch days sooner to take advantage of the 2% discount. Assuming 365 days in a year, 2% interest for Therefore, with the assumption of no additional costs to the loan, any loan at a rate this rate would be advantageous for Lynch's customer. 3. Explain why Lynch's granting of cash (sales) discounts may improve cash flow. The cash (sales) discount policy will encourage payment as well as additional sales. If customers pay more promptly, the length of time Lynch's money is tied up in receivables will days is equivalent to an annual interest rate of days is equivalent to an annual interest rate of
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