On December 1, 2019, Lynch Incorporated sold $19,000 of merchandise with terms 2/10, n/EOM. On December 11, 2019, collections were made on sales originally billed for $10,000, and on December 31, 2019, additional collections on sales originally billed for $8,000 were received.

	Required:
1.	Prepare the journal entries to record the sale, collections, and any required year-end adjustments assuming that Lynch records accounts receivable and sales at (a) the gross price and (b) the net price.
2.	Next Level Assume that Lynchs customer does not have the available cash to pay Lynch within the discount period. How much interest should the customer be willing to pay for a loan to permit them to take advantage of the discount period (assume no additional costs to the loan)?
3.	Next Level Explain why Lynchs granting of cash (sales) discounts may improve cash flow.
CHART OF ACCOUNTS
Lynch Incorporated
General Ledger
ASSETS 111 Cash 121 Accounts Receivable 141 Inventory 152 Prepaid Insurance 181 Equipment 198 Accumulated Depreciation LIABILITIES 211 Accounts Payable 231 Salaries Payable 250 Unearned Revenue 261 Income Taxes Payable EQUITY 311 Common Stock 331 Retained Earnings	REVENUE 411 Sales Revenue EXPENSES 500 Cost of Goods Sold 511 Insurance Expense 512 Utilities Expense 521 Salaries Expense 532 Bad Debt Expense 540 Interest Expense 541 Depreciation Expense 559 Miscellaneous Expenses 910 Income Tax Expense 1a. Prepare the journal entries to record the sale, collections and any required year-end adjustments assuming that Lynch records accounts receivable and sales at the gross price. General Journal Instructions PAGE 1 GENERAL JOURNAL DATE ACCOUNT TITLE POST. REF. DEBIT CREDIT 1 2 3 4 5 6 7 1b. Prepare the journal entries to record the sale, collections and any required year-end adjustments assuming that Lynch records accounts receivable and sales at the net price. General Journal Instructions PAGE 1 GENERAL JOURNAL DATE ACCOUNT TITLE POST. REF. DEBIT CREDIT 1 2 3 4 5 6 7 8 Adjusting Entries 9 10 2. Assume that Lynchs customer does not have the available cash to pay Lynch within the discount period. How much interest should the customer be willing to pay for a loan to permit them to take advantage of the discount period (assume no additional costs to the loan)? Additional Instruction The customer would have to pay Lynch days sooner to take advantage of the 2% discount. Assuming 365 days in a year, 2% interest for days is equivalent to an annual interest rate of . Therefore, with the assumption of no additional costs to the loan, any loan at a rate this rate would be advantageous for Lynchs customer. 3. Explain why Lynchs granting of cash (sales) discounts may improve cash flow. The cash (sales) discount policy will encourage payment as well as additional sales. If customers pay more promptly, the length of time Lynchs money is tied up in receivables will