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16 July, 09:41

On July 15, 2021, the Nixon Car Company purchased 2,200 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.

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  1. 16 July, 11:08
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    The journal entries are shown below:

    On July 15:

    Purchase A/c Dr $97,020

    To Accounts payable $97,020

    (By buying goods on credit with discount), the following are shown in the estimates of tire sales following application of the discount:

    = Number of tires * price per tire - discount rate

    = 2,200 tires * $45 - 2%

    = $99,000 - $1,980

    = $97,020

    On July 23:

    Account payable A/c Dr $97,020

    To Cash A/c $97,020

    (Being payment is made)

    On August 15:

    Account payable A/c Dr $97,020

    Interest expense A/c Dr $1,980

    To Cash A/c $99,000

    (Being payment is made on late interval)
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