In: Accounting
Tracy Company, a manufacturer of air conditioners, sold 110 units to Thomas Company on November 17, 2021. The units have a list price of $400 each, but Thomas was given a 20% trade discount. The terms of the sale were 3/10, n/30. Thomas uses a perpetual inventory system.
3. Prepare the journal entries to record the purchase by Thomas on November 17 and payment on November 26, 2021 and December 15, 2021 using the net method of accounting for purchase discounts.
WORKING NOTES: | ||||
CALCULATION OF NET VALUE OF PURCHASE OF AIR CONDITTIONES | ||||
List price = | $ 400.00 | |||
Less: 20% Trade discount | $ 80.00 | |||
Net purhcase Price | $ 320.00 | |||
No. of units Purchase | 110 | |||
Purchase Price | $ 35,200.00 | |||
Less:Purchase discount 3% | $ 1,056.00 | |||
Net Pruchase price | $ 34,144.00 | |||
SOLUTION : | ||||
Journal Entries | ||||
Sr. No. | Date | Account Title and explanation | Debit | Credit |
1 | Nov 17 , 2021 | Purchase | $34,144 | |
Accont Payable | $34,144 | |||
If Paid as on Nov 26, 2021 | ||||
Nov 26, 2021 | Account Payable | $34,144 | ||
2 | Cash | $34,144 | ||
If Paid as on Dec 15, 2021 | ||||
3 | Account Payable | $34,144 | ||
Loss on purchase discount | $1,056 | |||
Cash | $35,200 | |||