Question

On December 28, 2021, Tristar Communications sold 17 units of its new satellite uplink system to various customers for $25,000 each. The terms of each sale were 2/10, 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, 2022. By how much in 2022ï¼ income before tax will be reduced byï¼

Answer 1

Since the company records its transactions using hte gross method, any discounts will affect 2022 earnings. The journal entries to record these sales are:

December 28, 2021, 17 units sold

Dr Accounts receivable 425,000

Cr Sales revenue 425,000

January 6, 2022, invoices collected

Dr Cash 416,500

Dr Sales discounts 8,500

Cr Accounts receivable 425,000