Question

Prepare journal entries to record the following merchandising transactions of Lowe’s, which uses the perpetual inventory system and the gross method. (Hint: It will help to identify each receivable and payable; for example, record the purchase on August 1 in Accounts Payable—Aron.) Aug. 1 Purchased merchandise from Aron Company for $4,000 under credit terms of 1/10, n/30, FOB destination, invoice dated August 1. 5 Sold merchandise to Baird Corp. for $2,800 under credit terms of 2/10, n/60, FOB destination, invoice dated August 5. The merchandise had cost $2,000. 8 Purchased merchandise from Waters Corporation for $3,000 under credit terms of 1/10, n/45, FOB shipping point, invoice dated August 8. 9 Paid $140 cash for shipping charges related to the August 5 sale to Baird Corp. 10 Baird returned merchandise from the August 5 sale that had cost Lowe’s $500 and was sold for $1,000. The merchandise was restored to inventory. 12 After negotiations with Waters Corporation concerning problems with the purchases on August 8, Lowe’s received a credit memorandum from Waters granting a price reduction of $300 off the $3,000 of goods purchased. 14 At Aron’s request, Lowe’s paid $380 cash for freight charges on the August 1 purchase, reducing the amount owed to Aron. 15 Received balance due from Baird Corp. for the August 5 sale less the return on August 10. 18 Paid the amount due Waters Corporation for the August 8 purchase less the price allowance from August 12. 19 Sold merchandise to Tux Co. for $2,400 under credit terms of n/10, FOB shipping point, invoice dated August 19. The merchandise had cost $1,200. 22 Tux requested a price reduction on the August 19 sale because the merchandise did not meet specifications. Lowe’s sent Tux a $400 credit memorandum toward the $2,400 invoice to resolve the issue. 29 Received Tux’s cash payment for the amount due from the August 19 sale less the price allowance from August 22. 30 Paid Aron Company the amount due from the August 1 purchase.

Answer 1

Date	Account titles and explanation					Debit	Credit
Aug 1.	Merchandise Inventory					4000
	Accounts payable-Aron						4000
	(Purchased merchandise from Aron Company)
Aug 5.	Accounts receivable- Baird.					2800
	Sales						2800
	(Sold merchandise to Baird Corp.)
	Cost of goods sold					2000
	Merchandise Inventory						2000
	(Cost of goods sold recorded)
Aug 8.	Merchandise Inventory					3000
	Accounts payable-Waters						3000
	(Purchased merchandise from Waters Corporation)
Aug 9.	Delivery expenses					140
	Cash						140
	(Paid shipping charges related to the August 5 sale)
Aug 10.	Sales returns ad allowances					1000
	Accounts receivable- Baird.						1000
	(Baird returned merchandise from the August 5 sale)
	Merchandise Inventory					500
	Cost of goods sold						500
	(Cost of goods returned to inventory recorded)
Aug 12.	Accounts payable-Waters					300
	Merchandise Inventory						300
	(received a credit memorandum from Waters)
Aug 14.	Accounts payable-Aron					380
	Cash						380
	(Paid for freight charges reducing the amount owed to Aron)
Aug 15.	Cash					1764
	Sales returns and allowances			(1800*2%)		36
	Accounts receivable- Baird.						1800
	(Received balance due from Baird Corp)
Aug 18.	Accounts payable-Waters					2700
	Merchandise Inventory				(2700*1%)		27
	Cash						2673
	( Paid the amount due to Waters Corporation)
Aug 19.	Accounts receivable- Tux.					2400
	Sales						2400
	(Sold merchandise to Tux Co.)
	Cost of goods sold					1200
	Merchandise Inventory						1200
	(Cost of goods sold recorded)
Aug 22.	Sales returns and allowances					400
	Accounts receivable- Tux.						400
	(Sent Tux a $400 credit memorandum)
	Merchandise Inventory					200
	Cost of goods sold						200
	(Cost of goods sold adjusted towards credit memorandum)
Aug 29.	Cash					2000
	Accounts receivable- Tux.						2000
	(Received Tux’s cash payment)
Aug 30.	Accounts payable-Aron				(4000-380)	3620
	Cash						3620
	( Paid Aron Company)