Question

[The following information applies to the questions displayed below.] Tracy Company, a manufacturer of air conditioners, sold 100 units to Thomas Company on November 17, 2021. The units have a list price of $500 each, but Thomas was given a 30% trade discount. The terms of the sale were 2/10, n/30. Thomas uses a perpetual inventory system. Required: 1. Prepare the journal entries to record the (a) purchase by Thomas on November 17 and (b) payment on November 26, 2021. Thomas uses the gross method of accounting for purchase discounts. 2. Prepare the journal entry for the payment, assuming instead that it was made on December 15, 2021.

Answer 1

1A. November 17

Dr Purchases 35,000

Cr Accounts payable 35,000

1B. November 26

Dr Accounts payable 35,000

Cr Purchase discounts 700

Cr Cash 34,300

2. December 15, 2021

Dr Accounts payable 35,000

Cr Cash 35,000

Step-by-step explanation:

1A Preparation of the journal entries to record the (a) purchase by Thomas on November 17

November 17

Dr Purchases 35,000

Cr Accounts payable 35,000

[(100*$500)-(100*500*30%)]

=50,000-15,000

=35,000

B.Preparation of the journal entries to record the purchase by Thomas on November 26

November 26

Dr Accounts payable 35,000

Cr Purchase discounts 700

(2%*35,000)

Cr Cash 34,300

(35,000-700)

2. Preparation of the journal entry for the payment, assuming instead that it was made on December 15, 2021.

December 15, 2021

Dr Accounts payable 35,000

Cr Cash 35,000

[(100*$500)-(100*500*30%)]