Question

On July 15, 2021, the Nixon Car Company purchased 2,600 tires from the Harwell Company for $35 each. The terms of the sale were 2/10, n/30. Nixon uses a perpetual inventory system and the gross method of accounting for purchase discounts. Required: 1. Prepare the journal entries to record the purchase on July 15 and payment on July 23, 2021. 2. Prepare the journal entry for the payment, assuming instead that it was made on August 15, 2021.

Answer 1

Answer:

Explanation:

The journal entries are shown below:

On July 15:

Purchase A/c Dr $89,180

       To Accounts payable $89,180

(Being purchase of goods are made on credit with discount)

The computation of the purchase of tires after applying the discount is shown below:

= Number of tires × price per tire - discount rate

= 2,600 tires × $35 - 2%

= $91,000 - $1,820

= $89,180

On July 23:

Account payable A/c Dr $89,180

     To Cash A/c                                  $89,180

(Being payment is made)

On August 15:

Account payable A/c Dr $89,180

Interest expense A/c Dr $1,820

     To Cash A/c                                  $91,000

(Being payment is made on late interval)