Answer:
Harwell Company
1. Journal entries:
July 15:
Debit Accounts Receivable (Nixon Car Company) $183,330
Credit Sales Revenue $183,330
To record the sale of goods on account, terms 3/10, n/30.
July 23, 2021:
Debit Cash Account $183,330
Credit Accounts Receivable (Nixon Car Company) $183,330
To record receipt of cash from Nixon Car Company.
2. July 15:
Debit Accounts Receivable (Nixon Car Company) $183,330
Credit Sales Revenue $183,330
To record the sale of goods on account, terms 3/10, n/30.
August 15, 2021:
Debit Accounts Receivable (Nixon Car Company) $5,670
Credit Sales Revenue $5,670
To reverse the cash discounts lost due to late payment.
Debit Cash Account $189,000
Credit Accounts Receivable (Nixon Car Company) $189,000
To record receipt of cash from Nixon Car Company.
Explanation:
a) Data and Calculations:
July 15, 2021 Sales of tires to Nixon Car Company = 2,100 at $90 each
Sales revenue = $189,000
Terms = 3/10, n/30
Method = net method for cash discounts
Cash discounts = $5,670 ($189,000 * 3%)
Net sales revenue = $183,330 ($189,000 - $5,670)
b) When payment was delayed over 10 days by Nixon Car Company, it lost the cash discounts of 3%, equivalent to $5,670. This implies that it will pay the full amount of $189,000. The Accounts Receivable will, therefore, be debited to include the unreceived cash discounts of $5,670, while the Sales Revenue will be increased by $5,670.
