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Prepare journal entries to record the following merchandising transactions of Lowe's, which uses the perpetual inventory system and the gross method
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 $7,500 under credit terms of 1/10, 1/30, FOB destination, invoice dated August 1.
5 Sold merchandise to Baird Corp. for $5,200 under credit term of 2/10, n/60, POB destination, invoice dated August 5. The merchandise had cost $4.000.
8 Purchased merchandise from Waters Corporation for $5,400 under credit terms of 1/10, n/45, FOR shipping point, invoice dated August 8.
9 Paid $125 cash for shipping charges related to the August 5 sala to Baird Corp.
10 Baird returned merchandise from the August 5 sale that had cost Love's $400 and was sold for $600. The merchandise was restored to inventory.
12 After negotiations with waters Corporation concerning problems with the purchases on August 8, Love's received a credit bemorandum from Waters granting price reduction of $400 off the $5,400 of goods purchased.
14 At Aron's request, Lowe's paid $200 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 Tax a $500 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.
Expert Solution
Answer:
The required journal entries for the given transactions are shown as follows:-
Journal Entries (Amounts in $)
| No | Date | General Journal | Debit | Credit |
| 1 | Aug. 1 | Merchandise Inventory | 7,500 | |
| Accounts Payable-Aron | 7,500 | |||
| (To record the credit purchases) | ||||
| 2 | Aug. 5 | Accounts Receivable-Baird | 5,200 | |
| Sales revenue | 5,200 | |||
| (To record the credit sales) | ||||
| Aug. 5 | Cost of goods sold | 4,000 | ||
| Merchandise Inventory | 4,000 | |||
| (To record the cost of goods sold) | ||||
| 3 | Aug. 8 | Merchandise Inventory | 5,400 | |
| Accounts Payable-Waters | 5,400 | |||
| (To record the credit purchases) | ||||
| 4 | Aug. 9 | Delivery expense | 125 | |
| Cash | 125 | |||
| (To record the shipping charges on sale) | ||||
| 5 | Aug. 10 | Sales returns and allowances | 600 | |
| Accounts Receivable-Baird | 600 | |||
| (To record the sales returns) | ||||
| Aug. 10 | Merchandise Inventory | 400 | ||
| Cost of goods sold | 400 | |||
| (To record the cost of goods sold) | ||||
| 6 | Aug. 12 | Accounts Payable-Waters | 400 | |
| Merchandise Inventory | 400 | |||
| (To record the credit received) | ||||
| 7 | Aug. 14 | Accounts Payable-Aron | 200 | |
| Cash | 200 | |||
| (To record the freight paid) | ||||
| 8 | Aug. 15 | Cash (4,600-92) | 4,508 | |
| Sales discounts (4,600*2%) | 92 | |||
| Accounts Receivable-Baird (5,200-600) | 4,600 | |||
| (To record the amount received from Baird) | ||||
| 9 | Aug. 18 | Accounts Payable-Waters (5,400-400) | 5,000 | |
| Merchandise Inventory (5,000*1%) | 50 | |||
| Cash (5,000-50) | 4,950 | |||
| (To record the amount paid to supplier after discount) | ||||
| 10 | Aug. 19 | Accounts Receivable-Tux | 4,800 | |
| Sales revenue | 4,800 | |||
| (To record the credit sales) | ||||
| Aug. 19 | Cost of goods sold | 2,400 | ||
| Merchandise Inventory | 2,400 | |||
| (To record the cost of goods sold) | ||||
| 11 | Aug. 22 | Sales returns and allowances | 500 | |
| Accounts Receivable-Tux | 500 | |||
| (To record the sales allowance) | ||||
| 12 | Aug. 29 | Cash (2,400-500) | 1,900 | |
| Accounts Receivable-Tux | 1,900 | |||
| (To record the cash received from Tux co.) | ||||
| 13 | Aug. 30 | Accounts Payable-Aron (7,500-200) | 7,300 | |
| Cash | 7,300 | |||
| (To record the amount paid to Aron co.) |
Under perpetual method, inventory account is used to record purchases and freight on purchases. The cost of goods sold is calculated and recorded on every purchase.
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