Questions: Harwell Company manufactures automobile tires. On July 15, 2024, the company sold 1,900 tires to the Nixon Car Company for 35 each. The terms of the sale were 2 / 20, n / 30. Harwell uses the gross method of accounting for cash discounts. Required: 1. Prepare the journal entries to record the sale on July 15 (ignore cost of goods) and collection on July 23, 2024. 2. Prepare the journal entries to record the sale on July 15 (ignore cost of goods) and collection on August 15, 2024.

Harwell Company manufactures automobile tires. On July 15, 2024, the company sold 1,900 tires to the Nixon Car Company for 35 each. The terms of the sale were 2 / 20, n / 30. Harwell uses the gross method of accounting for cash discounts. Required: 1. Prepare the journal entries to record the sale on July 15 (ignore cost of goods) and collection on July 23, 2024. 2. Prepare the journal entries to record the sale on July 15 (ignore cost of goods) and collection on August 15, 2024.
Transcript text: Harwell Company manufactures automobile tires. On July 15, 2024, the company sold 1,900 tires to the Nixon Car Company for $\$ 35$ each. The terms of the sale were $2 / 20, n / 30$. Harwell uses the gross method of accounting for cash discounts. Required: 1. Prepare the journal entries to record the sale on July 15 (ignore cost of goods) and collection on July 23, 2024. 2. Prepare the journal entries to record the sale on July 15 (ignore cost of goods) and collection on August 15, 2024. Complete this question by entering your answers in the tabs below.
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Solution

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To address the requirements of the question, we need to prepare journal entries for the sale and subsequent collections under different scenarios. Harwell Company uses the gross method for accounting cash discounts, which means the sales are initially recorded at the full invoice price without considering potential discounts.

1. Journal Entries for Sale on July 15 and Collection on July 23, 2024

Sale on July 15, 2024:

  • Debit Accounts Receivable: 1,900 tires × $35 = $66,500
  • Credit Sales Revenue: $66,500

Journal Entry:

Date: July 15, 2024
   Debit: Accounts Receivable   $66,500
   Credit: Sales Revenue        $66,500

Collection on July 23, 2024:

Since the payment is made within the discount period (2/20), Nixon Car Company is eligible for a 2% discount.

  • Discount Amount: $66,500 × 2% = $1,330

  • Cash Received: $66,500 - $1,330 = $65,170

  • Debit Cash: $65,170

  • Debit Sales Discounts: $1,330

  • Credit Accounts Receivable: $66,500

Journal Entry:

Date: July 23, 2024
   Debit: Cash                 $65,170
   Debit: Sales Discounts      $1,330
   Credit: Accounts Receivable $66,500
2. Journal Entries for Sale on July 15 and Collection on August 15, 2024

Sale on July 15, 2024:

The sale entry remains the same as above.

Journal Entry:

Date: July 15, 2024
   Debit: Accounts Receivable   $66,500
   Credit: Sales Revenue        $66,500

Collection on August 15, 2024:

Since the payment is made after the discount period, no discount is applied.

  • Cash Received: $66,500

  • Debit Cash: $66,500

  • Credit Accounts Receivable: $66,500

Journal Entry:

Date: August 15, 2024
   Debit: Cash                 $66,500
   Credit: Accounts Receivable $66,500
Summary
  • For the collection on July 23, 2024, the company records a sales discount because the payment is made within the discount period.
  • For the collection on August 15, 2024, the full amount is collected without any discount as the payment is made after the discount period.
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