Question

Prepare journal entries to record the following merchandising transactions of Cabela’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 July 1 in Accounts Payable—Boden.)

Jul.		1		Purchased merchandise from Boden Company for $9,200 under credit terms of 1/15, n/30, FOB shipping point, invoice dated July 1.
Jul.		2		Sold merchandise to Creek Co. for $2,500 under credit terms of 2/10, n/60, FOB shipping point, invoice dated July 2. The merchandise had cost $1,500.
Jul.		3		Paid $765 cash for freight charges on the purchase of July 1.
Jul.		8		Sold merchandise that had cost $2,900 for $4,900 cash.
Jul.		9		Purchased merchandise from Leight Co. for $3,800 under credit terms of 2/15, n/60, FOB destination, invoice dated July 9.
Jul.		11		Received a $800 credit memorandum from Leight Co. for the return of part of the merchandise purchased on July 9.
Jul.		12		Received the balance due from Creek Co. for the invoice dated July 2, net of the discount.
Jul.		16		Paid the balance due to Boden Company within the discount period.
Jul.		19		Sold merchandise that cost $3,100 to Art Co. for $4,400 under credit terms of 2/15, n/60, FOB shipping point, invoice dated July 19.
Jul.		21		Issued a $900 credit memorandum to Art Co. for an allowance on goods sold on July 19.
Jul.		24		Paid Leight Co. the balance due, net of discount.
Jul.		30		Received the balance due from Art Co. for the invoice dated July 19, net of discount.
Jul.		31		Sold merchandise that cost $6,100 to Creek Co. for $10,200 under credit terms of 2/10, n/60, FOB shipping point, invoice dated July 31.

For each transaction, indicate the impact each item had on income and the dollar amount of the change in income, if any.  Input decreases to net income as negative values. Upon completion, compare the gross profit with the amount reported on the partial income statement.

Answer 1

Journal entries

Date	Particulars	Debit	Credit
Jul-01	Merchandise Inventory	$9,200.00
	Boden Company		$9,200.00
Jul-02	Creek Co	$2,500.00
	Sales		$2,500.00
	Cost of Goods sold	$1,500.00
	Merchandise Inventory		$1,500.00
Jul-03	Carriage Inwards	$765.00
	Cash		$765.00
Jul-08	Cash	$4,900.00
	Sales		$4,900.00
	Cost of Goods sold	$2,900.00
	Merchandise Inventory		$2,900.00
Jul-09	Merchandise Inventory	$3,800.00
	Leight Co		$3,800.00
Jul-11	Return outwards	$800.00
	Mechandise Inventory		$800.00
Jul-12	Cash	$2,450.00
	Discount payable $2500*2/100	$50.00
	Creek Co		$2,500.00
Jul-16	Boden Company	$9,200.00
	Discount received $9200*1/100		$92.00
	Cash		$9,108.00
Jul-19	Art co	$4,400.00
	Sales		$4,400.00
	Cost of Goods sold	$3,100.00
	Merchandise Inventory		$3,100.00
Jul-21	Return Inwards	$900.00
	Art Co		$900.00
Jul-24	Leight Co	$3,800.00
	Discount received		$76.00
	Cash		$3,724.00
Jul-30	Cash	$3,430.00
	Discount payable	$70.00
	Art Co (4400-900)		$3,500.00
Jul-31	Creek Co	$10,200.00
	Sales		$10,200.00
	Cost of Goods sold	$6,100.00
	Merchandise Inventory		$6,100.00

Effect on Income in $ for the Period - Transactions have been numbered for reference

1. No Impact on income until it is sold

2. +$1000 ($2500-$1500)

3. - $765

4. +$2000 (#4900- $2900)

5. No Impact

6. No Impact

7.-$50

8. +$92

9. +$1300

10 - $900

11 +$76

12 - $70

13 +$4100