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 $8,000 under credit terms of 1/10, n/30, FOB destination, invoice dated August 1.

5 Sold merchandise to Baird Corp. for $5,600 under credit terms of 2/10, n/60, FOB destination, invoice dated August 5. The merchandise had cost $4,000.

8 Purchased merchandise from Waters Corporation for $7,000 under credit terms of 1/10, n/45, FOB shipping point, invoice dated August 8.

9 Paid $210 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 $700 off the $7,000 of goods purchased.

14 At Aron’s request, Lowe’s paid $350 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 $4,800 under credit terms of n/10, FOB shipping point, invoice dated August 19. The merchandise had cost $2,400.

22 Tux requested a price reduction on the August 19 sale because the merchandise did not meet specifications. Lowe’s sent Tux a $800 credit memorandum toward the $4,800 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				8000
	Accounts payable-Aron					8000
	(Purchased merchandise)
Aug. 5	Accounts receivable-Baird corp				5600
	Sales					5600
	(Sold merchandise)
	Cost of goods sold				4000
	Merchandise inventory					4000
	(Cost of goods sold recorded)
Aug. 8	Merchandise inventory				7000
	Accounts payable-Waters corporation					7000
	(Purchased merchandise)
Aug. 9	Shipping charges				210
	Cash					210
	(Shipping charges paid-Under FOB destination it is the
	responsibility of the seller)
Aug. 10	Sales returns and allowances				1000
	Accounts receivable-Baird corp					1000
	( Baird returned merchandise from the August 5 sale)
	Merchandise inventory				500
	Cost of goods sold					500
	(Cost of goods sold reversed)
Aug. 12	Accounts payable-Waters corporation				700
	Merchandise inventory					700
	(Received a credit memorandum)
Aug. 14	Accounts payable-Aron				350
	Cash					350
	(At Aron’s request, Lowe’s paid cash for freight)
Aug. 15	Cash			(4600-92)	4508
	Sales discount			(4600*2%)	92
	Accounts receivable-Baird corp			(5600-1000)		4600
	(Payment made within 10 days.Eligible for 2% discount)
Aug. 18	Accounts payable-Waters corporation			(7000-700)	6300
	Merchandise inventory			(6300*1%)		63
	Cash			(6300-63)		6237
	(Payment made within 10 days.Eligible for 1% discount)
Aug. 19	Accounts receivable-Tux co.				4800
	Sales					4800
	(Sold merchandise to Tux Co)
	Cost of goods sold				2400
	Merchandise inventory					2400
	(Cost of goods sold recorded)
Aug. 22	Sales returns and allowances				800
	Accounts receivable-Tux co.					800
	(Lowe’s sent Tux a $800 credit memorandum)
Aug. 29	Cash				4000
	Accounts receivable-Tux co.			(4800-800)		4000
	(Received Tux’s cash payment)
Aug. 30	Accounts payable-Aron			(8000-350)	7650
	Cash					7650
	(Paid Aron Company-not eligible for discount since payment
	made after 10 days)
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