Question

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On July 15, 2021, the Nixon Car Company purchased 1,400 tires from the Harwell Company for $45 each. The terms of the sale were 2/10, n/30. Nixon uses a perpetual inventory system and the gross method of accounting for purchase discounts.

Required:

1. Prepare the journal entries to record the purchase on July 15 and payment on July 23, 2021.
2. Prepare the journal entry for the payment, assuming instead that it was made on August 15, 2021.

Answer 1

Answer 1.

Date	Account Titles and Explanation	Debit	Credit
July 15,2021	Inventory (1,400 * $45)	$63,000
	Accounts Payable		$63,000
	( For purchase of goods on account)
July 23,2021	Accounts Payable	$63,000
	Discount ( 2% of $63,000)		$1,260
	Bank        ( $63,000 - $1,260)		$61,740
	(For Payment to supplier)
Answer 2.
August 15,2021	Accounts Payable	$63,000
	Bank		$63,000
	(For Payment to supplier)

- Nixon will get discount of $1,260 ( $63,000 * 2%), if it makes payment on July 23,2021.As per payment terms 2% discount will be available if payment is made within 10 days of purchase.

- No Discount will be available for payment on August 15,2021.