Question

[The following information applies to the questions displayed below.] On July 15, 2021, the Nixon Car Company purchased 2,400 tires from the Harwell Company for $35 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. July 15, 2021 Record purchase of tires July 23, 2021 Record payment of July 15 purchase Required 2 August 15, 2021 Record payment of July 15 Purchase

[The following information applies to the questions displayed below.]

On July 15, 2021, the Nixon Car Company purchased 2,400 tires from the Harwell Company for $35 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.

3. If Nixon instead uses a periodic inventory system, explain any changes to the journal entries created in requirements 1 and 2.

The July 15 entry would include a debit to the _____________

entry would include a credit to the ____________________.

Answer 1

Under perpetual inventory system,

Req 1:

Date	Account title and explanation	Debit	Credit
July 15,2021	Merchandise Inventory (2400 x $35)	$84,000
	Accounts payable		$84,000
	[Purchased inventory on account]
July 23,2021	Accounts payable	$84,000
	Cash		$82,320
	Merchandise Inventory (84,000 x 2%)		$1,680
	[Paid cash to accounts payable]

Req 2:

Date	Account title and explanation	Debit	Credit
August 15,2021	Accounts payable	$84,000
	Cash		$84,000
	[Paid cash to accounts payable]

*Paid after 10 days. So, no discount applied.

Under periodic inventory system,

Req 1:

Date	Account title and explanation	Debit	Credit
July 15,2021	Purchases (2400 x $35)	$84,000
	Accounts payable		$84,000
	[Purchased inventory on account]
July 23,2021	Accounts payable	$84,000
	Cash		$82,320
	Purchase discount (84,000 x 2%)		$1,680
	[Paid cash to accounts payable]

Req 2:

Date	Account title and explanation	Debit	Credit
August 15,2021	Accounts payable	$84,000
	Cash		$84,000
	[Paid cash to accounts payable]

* Paid after 10 days, So no discount applied.