Question

During the months of January and February, Hancock Corporation sold goods to three customers. The sequence of events was as follows:

Jan. 6 Sold goods for $1,500 to S. Green and billed that amount subject to terms 2/10, n/30.
6 Sold goods to M. Munoz for $850 and billed that amount subject to terms 2/10, n/30.
14 Collected cash due from S. Green.
Feb. 2 Collected cash due from M. Munoz.
28 Sold goods for $400 to R. Reynolds and billed that amount subject to terms 2/10, n/45.

Required:
Assuming that Sales Discounts is treated as a contra-revenue, compute net sales for the two months ended February 28.

Answer 1

Net Sales $2720

Step-by-step explanation:

Hancock Corporation

Jan 6: Sales $ 1500

Add Jan 6 Sales $ 850

Less Jan 14 Sales Discount $ 30 ( 2% of $ 1500)

Add Feb 28: Sales $ 400

Net Sales $2720

Only a 2% discount is given on the cash received on Jan 14 on the sales made on JAn 6 to S. Green because the cash is received within the first ten days of sales made. The cash received on Feb 2 is not given the sales discount as it is received after ten days of the sales made. That is sales were done on Jan 6 to M. Munoz. with the terms 2/10, n/30 meaning discount will be given within the first ten days . But as the payment was on Feb 2 almost 17 days later the discount is not given.

The term 2/10 n/30 means a two percent discount will be given if sales were paid within the first ten days. So a discount is given to S. Green but not M. Munoz as payment is done after 10 days.