question archive Harwell Company manufactures automobile tires
Harwell Company manufactures automobile tires
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Harwell Company manufactures automobile tires. On July 15, 2015, the company sold 1,000 tires to the Nixon Car Company for $50 each. The terms of the sale were 2/10, n/30. Harwell uses the net method of accounting for cash discounts.
Required:
1. Prepare the journal entries to record the sale on July 15 (ignore cost of goods) and payment of Aug 15, 2015.
2. Prepare the journal entries to record the payment if it were instead make on July 23, 2015.
3. Assuming Harwell uses the net method of accounting for cash discounts, repeat requirements 1 and 2.
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1. Prepare the journal entries to record the sale on July 15 (ignore cost of goods) and payment of Aug 15, 2015.
| Date | Accounts | Debit | Credit |
|---|---|---|---|
| July 15, 2015 | Accounts Receivable | 49,000 | |
| Sales Discount (1,000 tires x $50 x 2%) | 1,000 | ||
| Sales (1,000 tires x $50) | 50,000 | ||
| "to record the sale of 1,000 tires" | |||
| Aug 15, 2015 | Cash | 50,000 | |
| Accounts Receivable | 49,000 | ||
| Sales Discount Forfeited | 1,000 | ||
| "to record the payment not within the discount period." |
2. Prepare the journal entries to record the payment if it were instead make on July 23, 2015.
| Date | Accounts | Debit | Credit |
|---|---|---|---|
| July 15, 2015 | Accounts Receivable | 49,000 | |
| Sales Discount (1,000 tires x $50 x 2%) | 1,000 | ||
| Sales (1,000 tires x $50) | 50,000 | ||
| "to record the sale of 1,000 tires" | |||
| July 23, 2015 | Cash | 49,000 | |
| Accounts Receivable | 49,000 | ||
| "to record the payment within the discount period." |
3. Assuming Harwell uses the net method of accounting for cash discounts, repeat requirements 1 and 2.
- There is an error in the problem because it is said that "Harwell uses the net method of accounting for cash discounts" and the 3rd question says to present it in net method which is redundant. Therefore, we will assume that the 3rd question means to present in gross method.
(1)
| Date | Accounts | Debit | Credit |
|---|---|---|---|
| July 15, 2015 | Accounts Receivable | 50,000 | |
| Sales (1,000 tires x $50) | 50,000 | ||
| "to record the sale of 1,000 tires" | |||
| Aug 15, 2015 | Cash | 50,000 | |
| Accounts Receivable | 50,000 | ||
| "to record the payment not within the discount period." |
(2)
| Date | Accounts | Debit | Credit |
|---|---|---|---|
| July 15, 2015 | Accounts Receivable | 50,000 | |
| Sales (1,000 tires x $50) | 50,000 | ||
| "to record the sale of 1,000 tires" | |||
| July 23, 2015 | Cash | 49,000 | |
| Sales Discount (1,000 tires x $50 x 2%) | 1,000 | ||
| Accounts Receivable | 50,000 | ||
| "to record the payment within the discount period." |
