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 $600 each, but Thomas was given a 30% trade discount. The terms of the sale were 2/10, n/30.
1.   Prepare the journal entries to record the sale on November 17 and collection on November 26, 2021 assuming the gross method is used.

2.   Prepare the journal entries to record the sale on November 17 and collection on November 26, 2021 assuming the net method is used.

3.   Prepare the journal entries to record the sale on November 17 and collection on December 15, 2021 assuming the gross method is used.

4.   Prepare the journal entries to record the sale on November 17 and collection on December 15, 2021 assuming the net method is used.

Answer 1

Selling price = List price - Trade discount

= (100 units x $600) - (100 units x $600) x 30%

= $60,000 - $18,000

= $42,000

Requirement 1: [Gross method, Cash collected within discount period]

Date	Account title and Explanation	Debit	Credit
Nov 17	Accounts receivable	$42,000
	Sales revenue		$42,000
	[To record sales on account]
Nov 26	Cash	$41,160
	Sales discount [42,000 x 2%]	$840
	Accounts receivable		$42,000
	[To record cash collections from customers]

Requirement 2: [Net method, Cash collected within discount period]

Date	Account title and Explanation	Debit	Credit
Nov 17	Accounts receivable [42,000 x 0.98]	$41,160
	Sales revenue		$41,160
	[To record sales on account]
Nov 26	Cash	$41,160
	Accounts receivable		$41,160
	[To record cash collections from customers]

Requirement 3: [Gross method, Cash collected after discount period]

Date	Account title and Explanation	Debit	Credit
Nov 17	Accounts receivable	$42,000
	Sales revenue		$42,000
	[To record sales on account]
Dec 15	Cash	$42,000
	Accounts receivable		$42,000
	[To record cash collections from customers]

Requirement : [Net method, Cash collected after discount period]

Date	Account title and Explanation	Debit	Credit
Nov 17	Accounts receivable [42,000 x 0.98]	$41,160
	Sales revenue		$41,160
	[To record sales on account]
Dec 15	Cash	$42,000
	Discount lost [42,000 x 0.02]		$840
	Accounts receivable		$41,160
	[To record cash collections from customers]