Question

1. 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.

A) 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.

B) Prepare the journal entry for the payment, assuming instead that it was made on December 15, 2021.

2. 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.

A) 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.

Answer 1

In the books of Thomas Company

Question 1:

Requirement A:

Part (a) and (b)

Date	Account Titles and explanations	Debit	Credit
Nov.17,2021	Inventory [(100*500)*70%]	$               35,000
	Account Payable - Tracy company		$         35,000
	(To record inventory purchased on account)
Nov.26,2021	Account Payable - Tracy company	$               35,000
	Purchase discount [35000*2%]		$              700
	Cash		$         34,300
	( To record account payable paid)

Requirement B:

Dec.15,2021	Account Payable - Tracy company	$               35,000
	Cash		$         35,000
	( To record account payable paid)

Question 2:

Requirement A:

Date	Account Titles and explanations	Debit	Credit
Nov.17,2021	Inventory [(100*500)*70%*98%]	$               34,300
	Account Payable - Tracy company		$         34,300
	(To record inventory purchased on account)
Nov.26,2021	Account Payable - Tracy company	$               34,300
	Cash		$         34,300
	( To record account payable paid)
Dec.15,2021	Account Payable - Tracy company	$               34,300
	Purchase discount lost	$                     700
	Cash		$         35,000
	( To record payment of purchases at lost discount)