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 $10,000 under credit terms of 1/10, n/30, FOB destination, invoice dated August 1. 5 Sold merchandise to Baird Corp. for $7,000 under credit terms of 2/10, n/60, FOB destination, invoice dated August 5. The merchandise had cost $5,000. 8 Purchased merchandise from Waters Corporation for $9,000 under credit terms of 1/10, n/45, FOB shipping point, invoice dated August 8. 9 Paid $150 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 $900 off the $9,000 of goods purchased. 14 At Aron’s request, Lowe’s paid $300 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 $6,000 under credit terms of n/10, FOB shipping point, invoice dated August 19. The merchandise had cost $3,000. 22 Tux requested a price reduction on the August 19 sale because the merchandise did not meet specifications. Lowe’s sent Tux a $1,000 credit memorandum toward the $6,000 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:

Credit Journal Entries Date Account Title Debit Merchandise 01-Aug Inventory $ 10,000 Accounts Payable - Aron |(To record purchase of inventory on account) $ 10,000 Accounts Receivable - Baird 05-Aug Corp $ 7,000 Sales (To record sale of inventory on account) $ 5,600 05-Aug Cost of Goods Sold $ 5,000 Inventory $ (To record cost of sale of inventory on account) 5,000 08-Aug Inventory $ 9,000 Accounts Payable- Waters Corp. $ (To record purchase of inventory on account) 9,000 150 09-Aug Freight Out $ Cash (To record shipping charges for sale) $ 150

Journal Entries:

Credit Debit 1,000 $ Journal Entries Date Account Title 10-Aug Sales Returns Accounts Receivable - Baird Corp (To record sales returns) $ 1,000 10-Aug Inventory $ 500 $ 500 Cost of Goods Sold (To record cost of goods returned) Accounts Payable - 12-Aug Waters Corp. $ 900 Inventory $ (To record price reduction after negotiations ) 900 Accounts Payable 14-Aug Aron $ 300 Cash $ 300 (To record payment of freight charges on behalf of Aaron)

Journal Entries:

Journal Entries Date Account Title Debit Credit 15-Aug Cash $ 5,880 Sales Discount $ 120 Accounts Receivable - Baird Corp $ 6,000 (To record receipt of cash from debtor) Balance = $ 6,000 (7,000 - 1,000) Discount = $ 120 (6,000 X 2%) 81 8,019 Accounts Payable - 18-Aug Water Corp. $ 8,100 Cost of Goods Sold $ Cash $ (To record payment to creditor) Balance due = 8,100 (9,000 - 900) Discount = $ 81 (8,100 X 1%) Accounts 19-Aug Receivable - Tux Co $ 6,000 Sales (To record sale of inventory on account) $ 6,000

Journal Entries:

Date Account Title Debit Credit 19-Aug Cost of Goods Sold $ 3,000 Inventory $ 3,000 (To record cost of sale of inventory on account) 22-Aug Sales Allowance $ 1,000 Accounts Receivable - Tux Co. $ 1,000 (To record sales allowance due to product not meeting specifications) 29-Aug Cash $ 5,000 Accounts Receivable - Tux $ (To record receipt of cash from debtor) Balance = $ 5,000 (6,000 - 1,000) Co. 5,000 Accounts Payable - Aron 30-Aug (10,000 - 420) $ 9,700 Cash $ 9,700 (To record payment to creditor net of shipping charges already incurred on behalf)