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.

Required: 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. 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 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 Lynchs granting of cash (sales) discounts may improve cash flow.

THERE SHOULD BE TWO GENERAL JOURNALS

Outline for Next Level section:

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 pay for a loan to permit them to take advantage of the discount period (assume no additional 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 _________ 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 or above)***** this rate would be advantageous for Lynchs customer.