Question
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
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 the net price.
2. | Next Level Assume that Lynchs customer does not have the available cash to pay Lynch within the discount period. How much interest should the customer be willing to payfor a loan to permit them to take advantage of the discount period (assume no additional costs to the loan)? |
3. | Next Level Explain why Lynchs granting of cash (sales) discounts may improve cash flow. |
Prepare the journal entries to record the sale, collections and any required year-end adjustments assuming that Lynch records accounts receivable and sales at the net price.
NEXT LEVEL (FILL IN 3 BLANKS): 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 _______ days is equivalent to an annual interest rate of __________. Therefore, with the assumption of no additional costs to the loan, any loan at a rate below this rate would be advantageous for Lynchs customer.
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started