Question

Tracy Company, a manufacturer of air conditioners, sold 100 units to Thomas Company on November 17, 2018. The units have a list price of $800 each, but Thomas was given a 25% trade discount. The terms of the sale were 2/10, n/30.

Required:

1. Prepare the journal entries to record the sale on November 17 (ignore cost of goods) and collection on November 26, 2018, assuming that the gross method of accounting for cash discounts is used.
2. Prepare the journal entries to record the sale on November 17 (ignore cost of goods) and collection on December 15, 2018, assuming that the gross method of accounting for cash discounts is used.
3-a. Prepare the journal entries to record the sale on November 17 (ignore cost of goods) and collection on November 26, 2018, assuming that the net method of accounting for cash discounts is used.
3-b. Prepare the journal entries to record the sale on November 17 (ignore cost of goods) and collection on December 15, 2018, assuming that the net method of accounting for cash discounts is used

Answer 1

• All working forms part of the answer
• Working

--If sales are recorded at Gross, Sales will be 100 units x ($800 – 25%) = 100 x 600 = $ 60,000
--Sales Discount if payment made within discount term of 10 days = $ 60,000 x 2% = $ 1,200
--If sales are recorded at Net amount, Sales will be $ 60,000 – $ 1,200 = $ 58,800

• Requirement 1

Date	Accounts title	Debit	Credit
17-Nov-18	Accounts receivables	$            60,000.00
	Sales revenue		$           60,000.00
	(Sales recorded at gross amount)
26-Nov-18	Cash	$            58,800.00
	Sales Discount	$              1,200.00
	Accounts receivables		$           60,000.00
	(Cash received within discount term of 10 days)

• Requirement 2

Date	Accounts title	Debit	Credit
17-Nov-18	Accounts receivables	$            60,000.00
	Sales revenue		$                      60,000.00
	(Sales recorded at gross amount)
15-Dec-18	Cash	$            60,000.00
	Accounts receivables		$                      60,000.00
	(Cash received after discount term of 10 days)

• Requirement 3 ‘a’

Date	Accounts title	Debit	Credit
17-Nov-18	Accounts receivables	$            58,800.00
	Sales revenue		$           58,800.00
	(Sales recorded at Net Method)
26-Nov-18	Cash	$            58,800.00
	Accounts receivables		$           58,800.00
	(Cash received within discount term of 10 days)

• Requirement 3 ‘b’

Date	Accounts title	Debit	Credit
17-Nov-18	Accounts receivables	$            58,800.00
	Sales revenue		$                      58,800.00
	(Sales recorded at Net Method)
15-Dec-18	Cash	$            60,000.00
	Sales Discount forfeited		$                        1,200.00
	Accounts receivables		$                      58,800.00
	(Cash received after discount term of 10 days)