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Harwell Company manufactures automobile tires. On July 15, 2021, the company sold 2,900 tires to the Nixon Car Company for $40 each. The terms of the sale were 2/10, n/30. Harwell uses the net method of accounting for cash discounts.
Required:
1. Prepare the journal entries to record the sale on July 15 (ignore cost of goods) and payment on July 23, 2021.
2. Prepare the journal entries to record the sale on July 15 (ignore cost of goods) and payment on August 15, 2021.

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Answer:

1. July 15

Dr Accounts Receivable 113,680

Cr Sales revenue 113,680

July 23

Dr Cash 113,680

Cr Accounts Receivable 113,680

2. July 15

Dr Accounts Receivable 113,680

Cr Sales revenue 113,680

Aug 15

Dr Cash 116,000

Cr Accounts Receivable 113,680

Cr Sales discount forfeited 2,320

Explanation:

1.Preparation of the journal entries to record the sale on July 15 and payment on July 23, 2021.

July 15

Dr Accounts Receivable 113,680

Cr Sales revenue 113,680

[($40*2,900)- (40*2,900*2%)]

(116,000-2,320=113,680)

July 23

Dr Cash 113,680

Cr Accounts Receivable 113,680

[($40*2,900)- (40*2,900*2%)]

(116,000-2,320=113,680)

2.Preparation of the journal entries to record the sale on July 15 and payment on August 15, 2021.

July 15

Dr Accounts Receivable 113,680

Cr Sales revenue 113,680

[($40*2,900)- (40*2,900*2%)]

(116,000-2,320=113,680)

Aug 15

Dr Cash 116,000

($40*2,900)

Cr Accounts Receivable 113,680

[($40*2,900)- (40*2,900*2%)]

(116,000-2,320=113,680)

Cr Sales discount forfeited 2,320

(40*2,900*2%)

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