Question

Problem 4-2A Preparing journal entries for merchandising activities-perpetual system LO P1, P2

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 $220 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 $390 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

Journal Entries:

Date	Account Titles and Explanation	Debit	Credit
Aug. 1	Merchandise Inventory	$8,000
	Accounts Payable - Aron Company		$8,000
	(To record the purchase of merchandise inventory on account)
Aug. 5	Accounts Receivable - Baird Corp.	$5,600
	Sales Revenue		$5,600
	(To record the sales of merchandise on account)
	Cost of Goods Sold	$4,000
	Merchandise Inventory		$4,000
	(To record the cost of goods sold)
Aug. 8	Merchandise Inventory	$7,000
	Accounts Payable - Waters Corporation		$7,000
	(To record the purchase of merchandise inventory on account)
Aug. 9	Merchandise Inventory	$220
	Cash		$220
	(To record the payment of shipping charges)
Aug. 10	Sales Returns and Allowances	$1,000
	Accounts Receivable - Baired Corp.		$1,000
	(To record the return of merchandise sold)
	Merchandise Inventory	$500
	Cost of Goods Sold		$500
	(To record cost of returned merchandise inventory)
Aug. 12	Accounts Payable - Waters Corporation	$700
	Merchandise Inventory		$700
	(To record the price reduction from the seller)
Aug. 14	Freight Charges	$390
	Cash		$390
	(To record the payment of freight charges)
Aug. 15	Cash ($4,600 - $92)	$4,508
	Discount allowed ($4,600*2/100)	$92
	Accounts Receivable - Baired Corp. ($5,600 - $1,000)		$4,600
	(To record the receipt of cash from Baired Corp. within the discount period)
Aug. 18	Accounts Payable - Waters Corporation ($7,000 - $700)	$6,300
	Discount Received ($6,300*1/100)		$63
	Cash ($6,300 - $63)		$6,237
	(To record the payment made to Waters Corportion within the discount period)
Aug. 19	Accounts Receivable - Tux Co.	$4,800
	Sales Revenue		$4,800
	(To record the sales of merchandise on account)
	Cost of Goods Sold	$2,400
	Merchandise Inventory		$2,400
	(To record the cost of goods sold)
Aug. 22	Sales Allowance	$800
	Accounts Receivable - Tux Co.		$800
	(To record the price reduction given on the credit sale)
Aug. 29	Cash	$4,000
	Accounts Receivable - Tux Co. ($4,800 - $800)		$4,000
	(To record the receipt of cash from Tux Co.)
Aug. 30	Accounts Payable - Aron Company	$8,000
	Cash		$8,000
	(To record the payment made to Aron)