Question

Tracy Company, a manufacturer of air conditioners, sold 290 units to Thomas Company on November 17, 2018. The units have a list price of $200 each, but Thomas was given a 25% trade discount. The terms of the sale were 4/10, n/30. Thomas uses a periodic inventory system. Required: 1. & 2. Prepare the journal entries to record the purchase by Thomas on November 17 and payment on November 26, 2018 and December 15, 2018 using the gross method of accounting for purchase discounts. 3. Repeat requirements 1 and 2 using the net method of accounting for purchase discounts.

Answer 1

In the books of Thomas

GROSS METHOD

Solution:(1): Journal entries to record purchase:

Date	particulars	Debit($)	Credit ($)
Nov 17	Purchases(290*200*75%)	43,500
	Accounts payable		43,500

Journal entry to record payment:

Date	Particulars	Debit($)	Credit ($)
Nov 26	Accounts Payable	43,500
	Cash		41,760
	Purchase discount (43500*4%)		1,740

Journal entry to record payment:

Date	Particulars	Debit($)	Credit ($)
Dec 15	Accounts Payable	43,500
	Cash		43,500

Solution:(2): NET METHOD

Journal entry to record Purchase:

Date	Particulars	Debit($)	Credit ($)
Nov 17	Purchases(290*200*75%*96%)	41,760
	Accounts payable		41,760

Journal entry to record payment:

Date	Particulars	Debit($)	Credit ($)
Nov 26	Accounts Payable	41,760
	Cash		41,760

Journal entry to record payment:

Date	Particulars	Debit($)	Credit ($)
Dec 15	Accounts Payable	41,760
	Interest expense	1,740
	Cash		43,500