Question

On December 28, 2024, Tristar Communications sold 10 units of its new satellite uplink system to various customers for $25,000 each. The terms of each sale were 1/10, n/30. Tristar uses the gross method to account for sales discounts.

In what year will income before tax be affected by discounts, assuming that all customers paid the net-of-discount amount on January 6, 2025? By how much?
In , income before tax will be by

Answer 1

Income before tax will be affected in the year 2025 when Tristar Communications records the discounted payments received on January 6, 2025. The total reduction in income as a result of the discounts will be $2,500.

Step-by-step explanation:

When Tristar Communications sold the satellite uplink systems on December 28, 2024, with the terms 1/10, n/30, it offered a 1% discount to customers who paid within 10 days. The gross method of accounting means that Tristar would record the full sales revenue without any discount initially. If customers take advantage of the discount and pay on January 6, 2025, Tristar will record the sales discount at that time. Hence, the income before tax would be affected in the year 2025 when the discounted payments are received.

Regarding the amount by which the income before tax would be affected, the total sales were for 10 units at $25,000 each, totaling $250,000. A 1% discount on $250,000 totals $2,500. Therefore, the income before tax would be reduced by $2,500 in 2025 as a result of the discounts utilized by customers.