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 \(7,500 under credit terms of 1∕10, n∕30, FOB destination, invoice dated August 1.

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.

8 Purchased merchandise from Waters Corporation for \)5,400 under credit terms of 1∕10, n∕45, FOB shipping point, invoice dated August 8.

9 Paid \(125 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 \)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, Lowe’s received a credit memorandum from Waters granting a 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 Tux 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.

Short answer

Both sides of the journal totals to$51,725.

Step-by-step solution

Step-by-Step SolutionStep 1: Definition of Sales Return and Allowance

The sales return and allowance account reports the value of the goods that the customer returns due to a defect or any other valid reason.

Journal Entries

Date	Accounts and Explanation	Debit $	Credit $
1 Aug	Merchandise inventory	$7,500
	Account payable		$7,500
5 Aug	Accounts receivables	5,200
	Sales revenue		5,200
	Cost of goods sold	4,000
	Merchandise inventory		4,000
8 Aug	Merchandise inventory	5,400
	Accounts payable		5,400
9 Aug	Delivery charges	125
	Cash		125
10 Aug	Sales return and allowance	600
	Accounts receivables		600
	Merchandise inventory	400
	Cost of goods sold		400
12 Aug	Account payable	400
	Merchandise inventory		400
14 Aug	Account payable	200
	Cash		200
15 Aug	Cash	4,508
	Discount allowed	92
	Accounts receivable		4,600
18 Aug	Account payable	5,000
	Discount received		50
	Cash		4,950
19 Aug	Accounts receivables	4,800
	Sales revenue		4,800
	Cost of goods sold	2,400
	Merchandise inventory		2,400
22 Aug	Sales return and allowances	500
	Accounts receivables		500
29 Aug	Cash	4,300
	Accounts receivable		4,300
30 Aug	Accounts payable	7,300
	Cash		7,300
		$51,725	$51,725