Question

Aug. 1 Purchased merchandise from Aron Company for $7,500 under credit terms of 1/10, n/30, FOB destination, invoice dated August 1. Aug. 5 Sold merchandise to Baird Corp. for $5,200 under credit terms of 2/10, n/60, FOB destination, invoice dated August 5. The merchandise had cost $4,000. Aug. 8 Purchased merchandise from Waters Corporation for $5,400 under credit terms of 1/10, n/45, FOB shipping point, invoice dated August 8. Aug. 9 Paid $125 cash for shipping charges related to the August 5 sale to Baird Corp. Aug. 10 Baird returned merchandise from the August 5 sale that had cost Lowe's $400 and was sold for $600. The merchandise was restored to inventory. Aug. 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 $400 off the $5,400 of goods purchased. Aug. 14 At Aron's request, Lowe's paid $200 cash for freight charges on the August 1 purchase, reducing the amount owed to Aron. Aug. 15 Received balance due from Baird Corp. for the August 5 sale less the return on August 10. Aug. 18 Paid the amount due Waters Corporation for the August 8 purchase less the price allowance from August 12. Aug. 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. Aug. 22 Tux requested a price reduction on the August 19 sale because the merchandise did not meet specifications. Lowe's sent Tux a $500 credit memorandum toward the $4,800 invoice to resolve the issue. Aug. 29 Received Tux's cash payment for the amount due from the August 19 sale less the price allowance from August 22. Aug. 30 Paid Aron Company the amount due from the August 1 purchase. Requirement General Journal General Ledger Trial Balance Schedule of Receivables Schedule of Payables Income Statement Impact on Income Prepare a multiple-step income statement. Lowe's Company Income Statement For the Month Ended August 31, 2020 Sales discounts $ 92 $ 0 0 0 92 0 Operating expenses: < Prey 9 of 9 HE Next

Answer 1

Credit Date Aug 1 Debit $7,500 $7,500 Aug 5 $5,200 $5,200 Aug 5 $4,000 $4,000 Aug 8 $5,400 $5,400 Aug 9 $125 $125 Account Titles Inventory Accounts Payable - Aaron (To record purchase of inventory) Accounts Receivable - Baird Corp Sales (To record sale of merchandice) Cost of Good Sold Inventory (To record cost of good sold) Inventory Accounts Payable - Walter Corporation (To record purchase of inventory) Freight - Out Cash (To record freight outward expense) Sales Return and Allowance Accounts Receivable - Baird Corp (To record sales return) Inventory Cost of Good Sold (To record restore the inventory) Accounts Payable - Walter Corporation Inventory (To record price reduction) Accounts Payable - Aaron Cash (To record payment of freight charges on behalf of Aaron) Cash Sales Discount Accounts Receivable - Baird Corp (To record amount received from Baird Corp) Aug 10 $600 $600 Aug 10 $400 $400 Aug 12 $400 $400 Aug 14 $200 $200 Aug 15 $4,508 $92 [($5200-$600) x2%] $4,600

Aug 18 Accounts Payable - Walter Corporation $5,000 Cost of Good Sold $50 [($5400-$400) x1%] Cash $4,950 (To record payment made to Walter Corporation) Aug 19 Accounts Receivable - Tux Co $4,800 Sales $4,800 (To record sale of merchandice) Aug 19 Cost of Good Sold $2,400 Inventory $2,400 (To record cost of good sold) Aug 22 Sales Return and Allowance $500 Accounts Receivable - Tux Co $500 (To record price reduction for sales made to Tux Co) Aug 29 Cash $4,300 Accounts Receivable - Tux Co $4,300 (To record payment received from Tux Co) Aug 30 Accounts Payable - Aaron $7,300 Cash $7,300 |(To record payment made to Aaron) Note (i) Perpetual inventory System: It is a system in which the information of inventory quantity and availability is updated on a continuous basis and entry is passed in the books for cost of good sold for every sales. Note (ii) Gross Method of accounting means that the sales/purchase are accounted based on the invoice value without considering the cash discounts offered/received and discount will be passed when the payment is received/made within the discount period. Note (iii) FOB Destination : The seller pays the freight charges. Note (iv) FOB Shipping : The buyer pays the freight charges Note (v) Credit term of 1/10, n/45 means that payment is be done in 45 days and if made within 10 days then 1% cash discount will be given in case of sales and cash discount received in case of purchase

Lowe's Company Income Statement For the month Ended August 31, 2020 Sales $10,000 Sales Return and Allowance $1,100 Sales Discount $92 Net Sales $8,808 Less: Cost of Good Sold $5,950 Gross Profit $2,858 Less: Operating Expense Freight - Out $125 Net Income $2,733