Question

For the next few weeks CJM Ad Agency is offering a 20% trade discount when providing advertising services of $50,000 or more to its customers to encourage customers to buy more advertising. The Agency also offers 2/15, n30 on all credit sales. All credit sales are invoiced at the end of the month. The Agency provided the following services this month; amounts are shown before trade discounts have been deducted: • • Designs a $30,000 ad campaign for Customer A- on account-pays within 15 days Designs a $50,000 ad campaign for Customer B, on account, pays within 15 days Designs a $50,000 ad campaign for Customer C, on account, pays within 30 days Designs a $20,000 ad campaign for Customer D-received payment last month What amount of Service revenue should the Agency record for Customer A? 2. $. _What amount of Service revenue should the Agency record for Customer B? 3. _Customer B pays within 15 days, how much will they pay? 4. S. Determine the monthly Service revenue for the Agency 5. $_ Determine the Agency's Net service revenue for the month Use the following to answer questions 6-7 MBC, Inc., reported the following amounts at the end of the year: Total sales Accounts receivable Sales allowances Allowance for Uncollectible accounts Sales discounts Sales returns $890,000 80,000 500 4,200 10,000 1,000 6. $___ Determine total contra revenues for the company 7. $ Determine net sales for the company

Answer 1

1. Service Revenue to be recorded for Customer A = $30000
Since discount is allowed at time of payment

2. Service Revenue to be recorded for Customer A = $40000 i.e. $50000-20%

3. Customer B pays = $40000 x 98% = $39200

4. Service Revenue for month = $30000+40000+40000+20000 = $130000

5. Net Service Revenue = $130000 - ($30000x2%) - ($40000x2%) = $128600

6. Contra Revenues = $500+10000+1000 = $11500

7. Net Sales for company = $890000-11500 = $878500