Answer:
See explanation
Step-by-step explanation:
Requirement 1 (A)
If the sales and receivables are at gross selling price, the discount will not be deducted from the selling amount during the recording process.
i) June 3. Debit Accounts receivable $3,000
Credit Sales revenue $3,000
Since the cost of goods sold is not given, it is assumed that the company uses periodic inventory system. Sales inventory on account with a term of 2/10, n/60. It means that if Chester pays the bill within 10 days, the seller will give 2% discount to the buyer. However, the bill has to be paid within 60 days.
ii) June 12. Debit Cash/Bank $2,940
Debit Sales discount 60
Credit Accounts receivable $3,000
As Chester company pays the bill within 10 days, according to the terms and conditions, Chester receives sales discount of $3,000 × 2% = $60.
Requirement 1 (B)
If the sales and receivables are at net selling price, the discount will be deducted from the selling amount during the recording process.
i) June 3. Debit Accounts receivable $2,940
Credit Sales revenue $2,940
Note: Sales are on account with a term of 2/10, n/60. In net selling method, the discount was deducted during the selling time. If Chester pays the bill within 10 days, the seller will give 2% discount to the buyer. If the company fails to provide, the discount will become forfeited.
ii) June 12. Debit Cash/Bank $2,940
Credit Accounts receivable $2,940
As Chester company pays the bill within 10 days, according to the terms and conditions, Chester receives sales discount.
Requirement 2
As Chester company has paid the bill on July 29, the company are not getting the discount from Arnold Company. To record the payment entry -
a) Gross selling method -
July 29. Debit Cash/Bank $3,000
Credit Accounts receivable $3,000
No discount was provided.
b) Net selling method -
July 29. Debit Cash/Bank $3,000
Credit Accounts receivable $2,940
Credit Sales discount forfeited 60
As Chester failed to pay within discount period, sales discount was forfeited.