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 $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 $700 off the $7,000 of goods purchased.
		14		At Aron’s request, Lowe’s paid $320 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

Ans- Journal Entries

Date	Account Title and Explanation	Debit ($)	Credit ($)
Aug.1	Merchandise Inventory A/c Dr.	8,000
	Accounts Payable -Aron		8,000
	(To record the purchase of goods on credit terms 1/10,n/30)
Aug.5	Accounts Receivable-Baird Corporation A/c Dr.	5,600
	Sales A/c		5,600
	(To record the goods sold on credit terms 2/10, n/60)
Aug.5	Cost of goods sold A/c Dr.	4,000
	Merchandising Inventory A/c		4,000
	(To record the cost of goods sold)
Aug.8	Merchandise Inventory A/c Dr.	7,000
	Accounts Payable- Water Corporation A/c		7,000
	(To record the purchase of goods on credit terms 1/10, n/45)
Aug.9	Delivery Expenses A/c Dr.	140
	Cash A/c		140
	(To record the shipping charges paid in cash)
Aug.10	Sales Returns and Allowances A/c Dr.	1,000
	Accounts Receivable -Baird		1,000
	(To record the return on merchandise by customer)
Aug.10	Merchandise Inventory A/c Dr.	500
	Cost of goods sold A/c		500
	(To record the returned goods to inventory)
Aug.12	Accounts Payable- Waters	700
	Merchandise Inventory A/c		700
	(To record the credit memo for Aug.8 purchase)
Aug.14	Accounts Payable-Aron A/c Dr.	320
	Cash A/c		320
	(To record the freight paid for Aron)
Aug.15	Cash A/c Dr.	4,508
	Sales Discount A/c Dr ($4,600*2%)	92
	Accounts Receivable- Baird ($5,600-$1,000) A/c		4,600
	(To record cash received from from Baird Corporation)
Aug.18	Accounts Payable-Waters Corporation A/c Dr.($7,000-$700)	6,300
	Merchandise Inventory A/c [($7,000-$700)*1%]		63
	Cash A/c ($6,300-$63)		6,237
	(To record the cash paid to Waters Corporation within discount period)
Aug.19	Accounts Receivable-Tux Company A/c Dr.	4,800
	Sales A/c		4,800
	(To record the goods sold on credit n/10)
Aug.19	Cost of goods sold A/c Dr.	2,400
	Merchandise Inventory A/c		2,400
	(To record the cost of goods sold)
Aug.22	Sales Returns and Allowance A/c Dr.	800
	Accounts Receivable-Tux Company Ac		800
	(To record the issue of credit memorandum)
Aug 29.	Cash A/c Dr.($4,800-$800)	4,000
	Accounts Receivable- Tux Company		4,000
	(To record the receipt of payment from accounts receivables)
Aug.30	Accounts Payable- Aron Dr.($8,000-$320)	7,680
	Cash A/c		7,680
	(To record the payment made to Aron)

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