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 $7,000 under credit terms of 1/10, n/30, FOB destination, invoice dated August 1.
		5		Sold merchandise to Baird Corp. for $4,900 under credit terms of 2/10, n/60, FOB destination, invoice dated August 5. The merchandise had cost $3,000.
		8		Purchased merchandise from Waters Corporation for $6,000 under credit terms of 1/10, n/45, FOB shipping point, invoice dated August 8.
		9		Paid $110 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 $600 off the $6,000 of goods purchased.
		14		At Aron’s request, Lowe’s paid $250 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 $4,200 under credit terms of n/10, FOB shipping point, invoice dated August 19. The merchandise had cost $2,100.
		22		Tux requested a price reduction on the August 19 sale because the merchandise did not meet specifications. Lowe’s sent Tux a $700 credit memorandum toward the $4,200 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

Journal Entries for merchandising transactions are shown as follows:-

Journal Entries (Amount in $)

Date	Account Titles	Debit	Credit
Aug. 1	Merchandise Inventory	7,000
	Accounts Payable-Aron		7,000
Aug. 5	Accounts Receivable-Baird	4,900
	Sales Revenue		4,900
Aug. 5	Cost of goods sold	3,000
	Merchandise Inventory		3,000
Aug. 8	Merchandise Inventory	6,000
	Accounts Payable-Waters		6,000
Aug. 9	Shipping Charges	110
	Cash		110
Aug. 10	Sales Returns and Allowances	1,000
	Accounts Receivable-Baird		1,000
Aug. 10	Merchandise Inventory	500
	Cost of goods sold		500
Aug. 12	Accounts Payable-Waters	600
	Discount Received		600
Aug. 14	Accounts Payable-Aron	250
	Cash		250
Aug. 15	Cash (3,900-78)	3,822
	Discount Allowed (3,900*2%)	78
	Accounts Receivable-Baird (4,900-1,000)		3,900
Aug. 18	Accounts Payable-Waters (6,000-600)	5,400
	Discount Received (5,400*1%)		54
	Cash (5,400-54)		5,346
Aug. 19	Accounts Receivable-Tux	4,200
	Sales Revenue		4,200
Aug. 19	Cost of goods sold	2,100
	Merchandise Inventory		2,100
Aug. 22	Discount Allowed	700
	Accounts Receivable-Tux		700
Aug. 29	Cash	3,500
	Accounts Receivable-Tux (4,200-700)		3,500
Aug. 30	Accounts Payable-Aron (7,000-250)	6,750
	Cash		6,750