Tracy Company, a manufacturer of air conditioners, sold 160 units to Thomas Comp

Question

Tracy Company, a manufacturer of air conditioners, sold 160 units to Thomas Company on November 17, 2018. The units have a list price of $550 each, but Thomas was given a 40% trade discount. The terms of the sale were 2/10, 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.

Explanation / Answer

Gross method Dr in $ Cr in $ 17-Nov Merchandise Purchase Dr. 52800 Accounts payable Cr. 52800 (Recording of purchase after trade discount @40%) If payment is made on Nov 26 26-Nov Accounts payable Dr. 52800 Cash Account Cr. 51744 Purchase discounts Cr. 1056 If Payment is made on Dec15 15-Dec Accounts payable Dr. 52800 Cash Account Cr. 52800 Net Method 17-Nov Merchandise Purchase Dr. 51744 Accounts payable Cr. 51744 (Recording of merchandise purchases at net of cash discount as well) If payment is made on Nov 26 26-Nov Accounts payable Dr. 51744 Cash Account Cr. 51744 If Payment is made on Dec15 15-Dec Discount Lost Dr. 1056 Accounts payable Cr. 1056 (for losing discount for payment not done within credit terms) 15-Dec Accounts payable Dr. 52800 Cash Account Cr. 52800 (For recording full payment made)

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