Question

Harwell Company manufactures automobile tires. On July 15, 2021, the company sold 1,400 tires to the Nixon Car Company for $55 each. The terms of the sale were 2/15, n/30. Harwell uses the gross method of accounting for cash discounts. Required: 1. Prepare the journal entries to record the sale on July 15 (ignore cost of goods) and collection on July 23, 2021. 2. Prepare the journal entries to record the sale on July 15 (ignore cost of goods) and collection on August 15, 2021.

Answer 1

Answer:

Dr Accounts receivable  $77,000

Cr Sales                                          $77,000

Payment within discount period:

Dr Cash                            $75,460

Dr Discount allowed         $1540

Cr  Accounts receivable                $77,000

When payment is not made within discount period, the necessary entries would be:

Dr Accounts receivable  $77,000

Cr Sales                                          $77,000

Payment within discount period:

Dr Cash                            $77,000

Cr  Accounts receivable                $77,000

Explanation:

Upon sales on July 15 ,2021 the total sales value of $77,000 ($55*1400) is credited sales account and debited to account receivables.

Collection of cash on July 23 ,2021 implies that the payment was collected within the discount period,hence the amount received is selling price less 2% discount, and as a result cash collected is $75460  ($77000*98%)

When payment is made on August 15, no discount is given has discount period has lapsed.