CH. 4 Journal Entries

After negotiations, received from Frist a $500 allowance toward the $8,500 owed on the April 18 purchase.

Accounts payable—Frist 500 Merchandise inventory 500

Sent check to Frist paying for the April 18 purchase, net of the allowance and the discount.

Accounts payable—Frist 8,000 Cash 7,920 Merchandise inventory 80

Sent a check to Lyon Company for the April 2 purchase, net of the discount and the returned merchandise.

Accounts payable—Lyon 4,000 Cash 3,920 Merchandise inventory 80

Returned to Lyon Company unacceptable merchandise that had an invoice price of $600.

Accounts payable—Lyon 600 Merchandise inventory 600

Allied Merchandisers was organized on May 1. Macy Co. is a major customer (buyer) of Allied (seller) products. May 3 Allied made its first and only purchase of inventory for the period on May 3 for 2,000 units at a price of $10 cash per unit (for a total cost of $20,000). 5 Allied sold 1,500 of the units in inventory for $14 per unit (invoice total: $21,000) to Macy Co. under credit terms 2/10, n/60. The goods cost Allied $15,000. 7 Macy returns 125 units because they did not fit the customer's needs (invoice amount: $1,750). Allied restores the units, which cost $1,250, to its inventory. 8 Macy discovers that 200 units are scuffed but are still of use and, therefore, keeps the units. Allied sends Macy a credit memorandum for $300 toward the original invoice amount to compensate for the damage. 15 Allied receives payment from Macy for the amount owed on the May 5 purchase; payment is net of returns, allowances, and any cash discount.

May 03 Merchandise inventory 20,000 Cash 20,000 May 05 Accounts receivable 21,000 Sales 21,000 May 05 Cost of goods sold 15,000 Merchandise inventory 15,000 May 07 Sales returns and allowances 1,750 Accounts receivable 1,750 May 07 Merchandise inventory 1,250 Cost of goods sold 1,250 May 08 Sales returns and allowances 300 Accounts receivable 300 May 15 Cash 18,570 Sales discounts 379 Accounts receivable 18,950

Allied Merchandisers was organized on May 1. Macy Co. is a major customer (buyer) of Allied (seller) products. May 3 Allied made its first and only purchase of inventory for the period on May 3 for 2,000 units at a price of $10 cash per unit (for a total cost of $20,000). 5 Allied sold 1,500 of the units in inventory for $14 per unit (invoice total: $21,000) to Macy Co. under credit terms 2/10, n/60. The goods cost Allied $15,000. 7 Macy returns 125 units because they did not fit the customer's needs (invoice amount: $1,750). Allied restores the units, which cost $1,250, to its inventory. 8 Macy discovers that 200 units are scuffed but are still of use and, therefore, keeps the units. Allied sends Macy a credit memorandum for $300 toward the original invoice amount to compensate for the damage. 15 Allied receives payment from Macy for the amount owed on the May 5 purchase; payment is net of returns, allowances, and any cash discount.

May 03 No journal entry required May 05 Merchandise inventory 21,000 Accounts payable 21,000 May 07 Accounts payable 1,750 Merchandise inventory 1,750 May 08 Accounts payable 300 Merchandise inventory 300 May 15 Accounts payable 18,950 Cash 18,571 Merchandise inventory 379

Paid $300 cash for shipping charges on the April 2 purchase.

Merchandise inventory 300 Cash 300

Purchased $4,600 of merchandise from Lyon Company with credit terms of 2/15, n/60, invoice dated April 2, and FOB shipping point.

Merchandise inventory 4,600 Accounts payable—Lyon 4,600

Purchased $8,500 of merchandise from Frist Corp. with credit terms of 1/10, n/30, invoice dated April 18, and FOB destination.

Merchandise inventory 8,500 Accounts payable—Frist 8,500

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.

No Date General Journal Debit Credit 1 Aug 01 Merchandise inventory 7,500 Accounts payable—Aron 7,500 2 Aug 05 Accounts receivable—Baird 5,200 Sales 5,200 3 Aug 05 Cost of goods sold 4,000 Merchandise inventory 4,000 4 Aug 08 Merchandise inventory 5,400 Accounts payable—Waters 5,400 5 Aug 09 Delivery expense 125 Cash 125 6 Aug 10 Sales returns and allowances 600 Accounts receivable—Baird 600 7 Aug 10 Merchandise inventory 400 Cost of goods sold 400 8 Aug 12 Accounts payable—Waters 400 Merchandise inventory 400 9 Aug 14 Accounts payable—Aron 200 Cash 200 10 Aug 15 Cash 4,508 Sales discounts 92 Accounts receivable—Baird 4,600 11 Aug 18 Accounts payable—Waters 5,000 Merchandise inventory 50 Cash 4,950 12 Aug 19 Accounts receivable—Tux 4,800 Sales 4,800 13 Aug 19 Cost of goods sold 2,400 Merchandise inventory 2,400 14 Aug 22 Sales returns and allowances 500 Accounts receivable—Tux 500 15 Aug 29 Cash 4,300 Accounts receivable—Tux 4,300 16 Aug 30 Accounts payable—Aron 7,300 Cash 7,300

The operating cycle of a merchandiser with credit sales includes the following five activities. With merchandise acquisition as the starting point, arrange the events in the correct order. a. Prepare merchandise for sale b. Collect cash from customers on account c. Make credit sales to customers d. Purchase merchandise e. Monitor and service accounts receivable

a. Prepare merchandise for sale 2 b. Collect cash from customers on account 5 c. Make credit sales to customers 3 d. Purchase merchandise 1 e. Monitor and service accounts receivable 4