Question

Aug.	1	Purchased merchandise on account from Arotek Company for $7,500, FOB destination.
	5	Sold merchandise on account to Laird Corp. for $5,200. The merchandise had cost $4,000.
	8	Purchased merchandise on account from Waters Corporation for $5,400, FOB shipping point. The invoice showed that at Sheng’s request, Waters paid the $140 shipping charges and added that amount to the bill.
	10	Laird returned merchandise from the August 5 sale that had cost Sheng $400 and been sold for $600. The merchandise was restored to inventory.
	12	After negotiations with Waters Corporation concerning problems with the merchandise purchased on August 8, Sheng received a credit memorandum from Waters granting a price reduction of $700.
	15	Received balance due from Laird Corp. for the August 5 sale.
	18	Paid the amount due Waters Corporation for the August 8 purchase.
	19	Sold merchandise on account to Tux Co. for $4,800. The merchandise had cost $2,400.
	22	Tux requested a price reduction on the August 19 sale because the merchandise did not meet specifications. Sheng sent Tux a $500 credit memorandum to resolve the issue.
	29	Received Tux’s cash payment for the amount due from the August 19 sale.
	30	Paid Arotek Company the amount due from the August 1 purchase

Prepare journal entries to record the above merchandising transactions of Sheng Company, which applies the perpetual inventory system.

Answer 1

Solution

Sheng Company

Entries

Date	Account Titles and Explanation	Ref. No.	Debit	Credit
Aug 1, XX	Merchandise Inventory		$7,500
	Accounts Payable - Arotek
	(To record purchase of inventory on account)
5-Aug	Accounts Receivable - Laird Corp		$5,200
	Sales Revenue			$5,200
	(To record sales made on account)
5-Aug	Cost of Goods Sold		$4,000
	Merchandise Inventory			$4,000
	(To record cost of goods sold)
8-Aug	Merchandise Inventory		$5,540
	Accounts Payable - Waters Corporation			$5,540
	(To record account purchases plus freight, 5,400 + 140 = $5,540)
10-Aug	Sales Return and Allowances		$600
	Accounts Receivable - Laird Corp			$600
	(To record sales returns)
10-Aug	Merchandise Inventory		$400
	Cost of Goods Sold			$400
	(to record cost of goods returned)
12-Aug	Accounts Payable - Waters Corporation		$700
	Merchandise Inventory			$700
	(Credit memo received)
15-Aug	Cash		$4,600
	Accounts Receivable - Laird Corp			$4,600
	(To record balance received from Laird Corp)
18-Aug	Accounts Payable - Waters Corporation		$4,840
	Cash			$4,840
	(To record payment made to Waters Corp; 5,540 -700 = 4,840)
19-Aug	Accounts Receivable - Tux Co		$4,800
	Sales Revenue			$4,800
	(To record account sales)
19-Aug	Cost of Goods Sold		$2,400
	Merchandise Inventory			$2,400
	(To record cost of goods sold to Tux)
22-Aug	Sales Return and Allowances		$500
	Accounts Receivable - Tux Co			$500
	(To record credit memo to Tux)
29-Aug	Cash		4,300
	Accounts Receivable - Tux Co			$4,300
	(To record cash received)
30-Aug	Accounts Payable - Arotek		$7,500
	Cash			$7,500
	(To record payment made to Arotek)