Question

Alexander Company uses the gross method and a perpetual inventory system. Assuming the following entries, compute the amount that Alexander Company received on September 17.

September	7		Sold goods costing $8,400 to King Company on account, $14,000, terms 5/10, n/30. The goods are shipped FOB Shipping Point, Freight Prepaid by Seller, $220.
September	13		King Company returned undamaged merchandise previously purchased on account, $1,700.
September	17		Received the amount due from King Company.

Answer 1

Sales price, $14,000
Terms, 5/10, n/30
Date of sale, September 7
Date of payment, September 17

Returns and allowances (before payment), $1,700
The goods are shipped FOB Shipping Point, Freight Prepaid by Seller, $220.

Final amount due = Sales - Sales returns

= 14,000-1,700

= $12,300

Sales discount = Final amount due x Discount percentage

= 12,300 x 5%

= $615

Amount that King Company has to pay to the seller = Sale price - Sales returns - Sales discount + Shipping expense

= 14,000-1,700-615+220

= $11,905

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