Question

Blue Company sells goods to Danone Inc. by accepting a note receivable on January 2, 2020. The goods have a sales price of $551,000 (cost of $480,000). The terms are net 30. If Danone pays within 5 days, however, it receives a cash discount of $11,000. Past history indicates that the cash discount will be taken. On January 28, 2020, Danone makes payment to Blue for the full sales price.

Prepare the journal entry(ies) to record the sale and related cost of goods sold for Blue Company on January 2, 2020, and the payment on January 28, 2020. Assume that Blue Company records the January 2, 2020, transaction using the net method. (Credit account titles are automatically indented when the amount is entered. Do not indent manually. If no entry is required, select "No entry" for the account titles and enter 0 for the amounts.) Date Account Titles and Explanation Debit Credit choose a transaction date Jan. 2, 2020Jan. 28, 2020 enter an account title to record sales enter a debit amount enter a credit amount enter an account title to record sales enter a debit amount enter a credit amount (To record sales) enter an account title to record cost of goods sold enter a debit amount enter a credit amount enter an account title to record cost of goods sold enter a debit amount enter a credit amount (To record cost of goods sold) choose a transaction date Jan. 2, 2020Jan. 28, 2020 enter an account title to record payment received enter a debit amount enter a credit amount enter an account title to record payment received enter a debit amount enter a credit amount enter an account title to record payment received enter a debit amount enter a credit amount (To record payment received)

Prepare the journal entry(ies) to record the sale and related cost of goods sold for Blue Company on January 2, 2020, and the payment on January 28, 2020. Assume that Blue Company records the January 2, 2020, transaction using the gross method. (Credit account titles are automatically indented when the amount is entered. Do not indent manually. If no entry is required, select "No entry" for the account titles and enter 0 for the amounts.) Date Account Titles and Explanation Debit Credit choose a transaction date Jan. 2, 2020Jan. 28, 2020 enter an account title to record sales enter a debit amount enter a credit amount enter an account title to record sales enter a debit amount enter a credit amount (To record sales) enter an account title to record cost of goods sold enter a debit amount enter a credit amount enter an account title to record cost of goods sold enter a debit amount enter a credit amount (To record cost of goods sold) choose a transaction date Jan. 2, 2020Jan. 28, 2020 enter an account title to record payment received enter a debit amount enter a credit amount enter an account title to record payment received enter a debit amount enter a credit amount (To record payment received)

Answer 1

Net method is a way to record sales net of discount. Discount is not recognized initial sales recognition.However, if sales are returned, discount forfeited needs to be recognized.

On the other hand, in case of gross sales, sales are inclusive of discount and discount are recorded only when the account is settled. Since, return has been made, discount need not be recorded and sales be reversed in full.

a)	Net method
02-Jan	Notes receivable ( 551,000 – 11000)	540,000
	Sales revenue		540,000
	(To record sales)
02-Jan	Cost of goods sold	480,000
	Inventory		480,000
	(To record cost of goods sold)
28-Jan	Cash	551,000
	Notes receivable		540,000
	Sales discount forfeited		11000
	(To record payment received)
b)	Gross method
02-Jan	Notes receivable	551,000
	Sales revenue		551,000
	(To record sales)
02-Jan	Cost of goods sold	480,000
	Inventory		480,000
	(To record cost of goods sold)
28-Jan	Cash	551,000
	Notes receivable		551,000
	(To record payment received)