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7 May, 02:47

Larson Company on July 15 sells merchandise on account to Stuart Co. for $1,000, terms 2/10, n/30. On July 20 Stuart Co. returns merchandise worth $400 to Larson Company. On July 24 payment is received from Stuart Co. for the balance due. What is the amount of cash received? a. $600b. $588c. $580d. $1,000

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  1. 7 May, 02:52
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    b. $588

    Explanation:

    Terms 2/10, n/30 means that 2% discount for the payment within 10 days and the full amount to be paid within 30 days.

    When Larson Company sold merchandise, the following entry was made to recording revenue (sales) and the receivable:

    Debit Receivable Account $1,000

    Credit Revenue $1,000

    On July 20 Stuart Co. returns merchandise, the entry is made to record the decreasing of Receivable Account:

    Debit Revenue $400

    Credit Receivable Account $400

    The balance Receivable Account of Stuart Co. = $1000-$400 = $600

    On July 24, Stuart Co. makes the payment, the sales discount was:

    $600 x 2% = $12

    The amount of cash received = $600-$12=$588

    The following entry is made:

    Debit Cash: $588

    Debit Sales discount: $12

    Credit Receivable Account $600
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