Eastman Corporation sells merchandise with a list price of $16,000 on February 1, 2019, with terms of 1/10, n/30. On February 10, 2019, payment was received on merchandise originally billed for $6,500, and the balance due was received on March 1, 2019.

Required:

1.

Prepare the journal entries to record the preceding information assuming that Eastman records accounts receivable and sales at (a) the gross price and (b) the net price.

2.

Next Level What implied annual interest rate is Eastmans customer incurring by failing to take the cash (sales) discount? (Assume a 365-day year.)

3.

Next Level Which methodrecording accounts receivable at the gross price or net priceis theoretically superior? Why?

Prepare the journal entries to record the transactions assuming that Eastman records accounts receivable and sales at the gross price.

General Journal Instructions

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	DATE	ACCOUNT TITLE	POST. REF.	DEBIT	CREDIT
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Points:

When the selling company uses the gross price method, it records the total invoice price at the time of sale as if no cash discount were involved. When the customer pays and takes the allowable cash discount, the company records the difference between the cash received and the original amount of the sale. If the customer does not take the cash discount, it pays an amount that is equal to the original amount of the sale and no further adjustment is needed.

1b. Prepare the journal entries to record the transactions assuming that Eastman records accounts receivable and sales at the net price.

General Journal Instructions

PAGE 1

GENERAL JOURNAL

	DATE	ACCOUNT TITLE	POST. REF.	DEBIT	CREDIT
1
2
3
4
5
6
7