Harwell Company manufactures automobile tires. On July 15, 2021, the company sold 2,100 tires to the Nixon Car Company for $90 each. The terms of the sale were 3/10, n/30. Harwell uses the net method of accounting for cash discounts. Required:1. Prepare the journal entries to record the sale on July 15 (ignore cost of goods) and payment on July 23, 2021.2. Prepare the journal entries to record the sale on July 15 (ignore cost of goods) and payment on August 15, 2021.

Harwell Company

1. Journal entries:

July 15:

Debit Accounts Receivable (Nixon Car Company) $183,330

Credit Sales Revenue $183,330

To record the sale of goods on account, terms 3/10, n/30.

July 23, 2021:

Debit Cash Account $183,330

Credit Accounts Receivable (Nixon Car Company) $183,330

To record receipt of cash from Nixon Car Company.

2. July 15:

Debit Accounts Receivable (Nixon Car Company) $183,330

Credit Sales Revenue $183,330

To record the sale of goods on account, terms 3/10, n/30.

August 15, 2021:

Debit Accounts Receivable (Nixon Car Company) $5,670

Credit Sales Revenue $5,670

To reverse the cash discounts lost due to late payment.

Debit Cash Account $189,000

Credit Accounts Receivable (Nixon Car Company) $189,000

To record receipt of cash from Nixon Car Company.

Explanation:

a) Data and Calculations:

July 15, 2021 Sales of tires to Nixon Car Company = 2,100 at $90 each

Sales revenue = $189,000

Terms = 3/10, n/30

Method = net method for cash discounts

Cash discounts = $5,670 ($189,000 * 3%)

Net sales revenue = $183,330 ($189,000 - $5,670)

b) When payment was delayed over 10 days by Nixon Car Company, it lost the cash discounts of 3%, equivalent to $5,670.  This implies that it will pay the full amount of $189,000.  The Accounts Receivable will, therefore, be debited to include the unreceived cash discounts of $5,670, while the Sales Revenue will be increased by $5,670.

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