Question

Tracy Company, a manufacturer of air conditioners, sold 100 units to Thomas Company on November 17, 2021. The units have a list price of $760 each, but Thomas was given a 25% trade discount. The terms of the sale were 2/10, n/30. Exercise 7-5 (Algo) Part - 1 Required: 1. Prepare the journal entries to record the sale on November 17 (ignore cost of goods) and collection on November 26, 2021, assuming that the gross method of accounting for cash discounts is used.

Answer 1

Answer:

November 17

Trade Receivable-Thomas Company  $56,250 (debit)

Revenue  $56,250 (credit)

November 26

Cash $55,125 (debit)

Discount Allowed $1,125 (debit)

Trade Receivable-Thomas Company  $56,250 (credit)

Explanation:

November 17

Recognize Revenue and Recognize an Asset : Trade Receivable

Trade Receivable-Thomas Company  $56,250 (debit)

Revenue  $56,250 (credit)

Revenue Calculation = 100 units × $760 × 75% = $56,250

November 26

The payment date is within the cash discount period in terms of credit sale. Hence Thomas Company is granted cash discount of 2% (2/10, n/30).

Cash $55,125 (debit)

Discount Allowed $1,125 (debit)

Trade Receivable-Thomas Company  $56,250 (credit)