Question

Trade and cash discounts; the gross method and the net method compared [LO7-3].Tracy Company, a manufacturer of air conditioners, sold 200 units to Thomas Company on November 17, 2016. The units have a list price of $550 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, 2016, assuming that the gross method of accounting for cash discounts is used. Transaction listA. Record the sale of 200 units with a list price of $550, a 25% trade discount (if applicable), with terms of 2/10, n/30 under the gross method. B. Record the cash collection on November 26.2. Prepare the journal entries to record the sale on November 17 (ignore cost of goods) and collection on December 26, 2016, assuming that the gross method of accounting for cash discounts is used.

Answer 1

Answer and Explanation:

The Journal entries are shown below:-

1. Within discount period  

Nov 17

Accounts receivable Dr, $82,500

       To Sales revenue $82,500 (200 × $550 × 75%)

(Being sales revenue is recorded)

Nov 26

Cash Dr, $80,850

Sales discount Dr, $1,650 ($82,500 × 2%)

       To Accounts receivable $82,500

(Being cash collection is recorded)

2. Beyond discount period

Nov 17

Accounts receivable Dr, $82,500

       To Sales revenue $82,500 (200 × $550 × 75%)

(Being sales revenue is recorded)

Dec 15

Cash Dr, $82,500

      To accounts receivable $82,500

(Being cash collection is recorded)