Question 2.) Hawkeye Electric Company engaged in the following transactions during July.
July 2 – Purchased inventory for cash, $800
July 5 – Purchased store supplies on credit terms of net eom, $600.
July 8 – Purchased inventory of $3,000, plus freight charges of $230. Credit terms are 3/15 n/30.
July 9 – Sold goods for cash $1,200, Hawkeye’s cost of these goods was $700.
July 11 – Returned $200 of the inventory purchased on July 8. It was damaged.
July 12 – Purchased inventory on credit terms of 3/10 n/30, $3,330.
July 14 – Sold inventory on credit terms of 2/10 n/30, $9,600(cost $5,000).
July 16 – Paid utilities expense, $275.
July 20 – Received returned inventory from July 14 sale, $400. Hawkeye shipped the wrong goods by mistake. Hawkeye’s cost of the inventory received was $250.
July 21 – Borrowed the amount owed on the July 8 purchase. Signed a note payable to the bank for $2,946, which takes into account the return of inventory on July 11.
July 23 – Received $6,860 cash in partial settlement of his account from the customer who purchased inventory on July 14. Granted the customer a 2% discount and credited his account receivable for $7,000.
July 30 – Paid for the store supplies purchased on July 5.
- Journalize the preceding transactions on the books of Hawkeye Electric Company.
- Compute the amount of the receivable at July 31from the customer to whom Hawkeye sold inventory on July 14. What amount of cash discount applies to this receivable at July 31.
To journalize the preceding transactions on the books of Hawkeye Electric Company, follow these steps:
Step 1: Analyze the transactions and identify the accounts involved.
Here are the accounts related to each transaction:
Transaction 1 (July 2):
- Inventory (debit)
- Cash (credit)
Transaction 2 (July 5):
- Store Supplies (debit)
- Accounts Payable (credit)
Transaction 3 (July 8):
- Inventory (debit)
- Freight Charges (debit)
- Accounts Payable (credit)
Transaction 4 (July 9):
- Cash (debit)
- Sales Revenue (credit)
- Cost of Goods Sold (debit)
- Inventory (credit)
Transaction 5 (July 11):
- Accounts Payable (debit)
- Inventory (credit)
Transaction 6 (July 12):
- Inventory (debit)
- Accounts Payable (credit)
Transaction 7 (July 14):
- Accounts Receivable (debit)
- Sales Revenue (credit)
- Cost of Goods Sold (debit)
- Inventory (credit)
Transaction 8 (July 16):
- Utilities Expense (debit)
- Cash (credit)
Transaction 9 (July 20):
- Accounts Receivable (debit)
- Inventory (debit)
- Sales Returns and Allowances (credit)
Transaction 10 (July 21):
- Accounts Payable (debit)
- Notes Payable (credit)
Transaction 11 (July 23):
- Cash (debit)
- Sales Discounts (debit)
- Accounts Receivable (credit)
Transaction 12 (July 30):
- Accounts Payable (debit)
- Cash (credit)
Step 2: Record the transactions in a general journal format.
Here is the journalizing of the transactions:
Date | Account Title and Explanation | Debit | Credit
-----------------------------------------------------------------------------
July 2 | Inventory | $800 |
| Cash | | $800
July 5 | Store Supplies | $600 |
| Accounts Payable | | $600
July 8 | Inventory | $3,000 |
| Freight Charges | $230 |
| Accounts Payable | | $3,230
July 9 | Cash | $1,200 |
| Sales Revenue | | $1,200
| Cost of Goods Sold | $700 |
| Inventory | | $700
July 11 | Accounts Payable | $200 |
| Inventory | | $200
July 12 | Inventory | $3,330 |
| Accounts Payable | | $3,330
July 14 | Accounts Receivable | $9,600 |
| Sales Revenue | | $9,600
| Cost of Goods Sold | $5,000 |
| Inventory | | $5,000
July 16 | Utilities Expense | $275 |
| Cash | | $275
July 20 | Accounts Receivable | $400 |
| Inventory | $250 |
| Sales Returns and Allowances | | $650
July 21 | Accounts Payable | | $3,030
| Notes Payable | $2,946 |
July 23 | Cash | $6,860 |
| Sales Discounts | $140 |
| Accounts Receivable | | $7,000
July 30 | Accounts Payable | $600 |
| Cash | | $600
Step 3: Compute the amount of the receivable at July 31 from the customer to whom Hawkeye sold inventory on July 14. What amount of cash discount applies to this receivable at July 31.
To compute the receivable at July 31:
Accounts Receivable at July 31 = Accounts Receivable on July 14 - Cash received on July 23
Accounts Receivable on July 14 = $9,600
Cash received on July 23 = $6,860
Accounts Receivable at July 31 = $9,600 - $6,860 = $2,740
To calculate the cash discount applied to this receivable at July 31:
Cash Discount = Accounts Receivable at July 31 x Discount Rate
Discount Rate = 2/10 = 0.02
Cash Discount = $2,740 x 0.02 = $54.80
Therefore, the amount of the receivable at July 31 from the customer is $2,740 and the cash discount applied to this receivable at July 31 is $54.80.