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 $9,000 under credit terms of 1/10, n/30, FOB destination, invoice dated August 1.
		5		Sold merchandise to Baird Corp. for $6,300 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 $8,000 under credit terms of 1/10, n/45, FOB shipping point, invoice dated August 8.
		9		Paid $200 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 $800 off the $8,000 of goods purchased.
		14		At Aron’s request, Lowe’s paid $280 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 $5,400 under credit terms of n/10, FOB shipping point, invoice dated August 19. The merchandise had cost $2,700.
		22		Tux requested a price reduction on the August 19 sale because the merchandise did not meet specifications. Lowe’s sent Tux a $900 credit memorandum toward the $5,400 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

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Date	Account	Debit	Credit
Aug 1	Merchandise Inventory	$                  9,000
	Accounts Payable-Aron		$                 9,000
	(being merchandise purchased on account, terms 1/10,n/30 FOB Destination)
Aug 5	Accounts Receivable-Baird Corp	$                  6,300
	Sales Revenue		$                 6,300
	(Being merchandise sold on account, terms 2/10,n/30 FOB Destination)
Aug 5	Cost of Goods Sold	$                  4,000
	Merchandise Inventory		$                 4,000
	(Being cost of goods sold booked)
Aug 8	Merchandise Inventory	$                  8,000
	Accounts Payable-Waters Corp		$                 8,000
	(being merchandise purchased on account, terms 1/10,n/45 FOB Shipping)
Aug 9	Freight out	$                     200
	Cash		$                    200
	(being freight charges paid)
Aug 10	Sales Return and Allowance	$                  1,000
	Accounts Receivable-Baird Corp		$                 1,000
	(being merchandise return)
Aug 10	Merchandise Inventory	$                     500
	Cost of Goods Sold		$                    500
	(being cost of goods sold reversed)
Aug 12	Accounts Payable-Waters Corp	$                     800
	Merchandise Inventory		$                    800
	(credit memo received)
Aug 14	Accounts Payable-Aron	$                     280
	Cash		$                    280
	(Being freight charges paid on behalf of aron)
Aug 15	Cash	$                  5,194
	Sales Discount (5300*2%)	$                     106
	Accounts Receivable-Baird Corp (6300-1000)		$                 5,300
Aug 18	Accounts Payable-Waters Corp (8000-800)	$                  7,200
	Merchandise Inventory (7200*1%)	$                       72
	Cash		$                 7,128
Aug 19	Accounts Receivable-Tux Co	$                  5,400
	Sales Revenue		$                 5,400
	(Being merchandise sold on account, terms n/10, FOB Shippint point)
Aug 19	Cost of Goods Sold	$                  2,700
	Merchandise Inventory		$                 2,700
	(Being cost of goods sold booked)
Aug 22	Sales return and Allowance	$                     900
	Accounts Receivable-Tux Co		$                    900
	(credit memorandum recorded)
Aug 29	Cash (5400-900)	$                  4,500
	Accounts Receivable-Tux Co		$                 4,500
	(being amount received from Tux)
Aug 30	Accounts Payable-Aron (9000-280)	$                  8,720
	Cash		$                 8,720
	(being amount paid to Aron)