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Q4-17E

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Financial & Managerial Accounting
Found in: Page 212
Financial & Managerial Accounting

Financial & Managerial Accounting

Book edition 7th
Author(s) John J Wild, Ken W. Shaw, Barbara Chiappetta
Pages 1096 pages
ISBN 9781259726705

Short Answer

Refer to Exercise 4-7 and prepare journal entries to record each of the merchandising transactions assuming that the periodic inventory system and the gross method are used by both the buyer and the seller.

Answer

  1. Both credit and debit sides of the journal entry amount to $80,345 each.
  2. Both credit and debit sides of the journal entry amount to $80,000 each.
See the step by step solution

Step by Step Solution

Step-by-Step SolutionStep 1: Definition of Periodic Inventory System

The reporting system under which a business entity calculates the inventory by physical inspection once at year-end is known as a periodic inventory system.

Step 2: Journal entries for the buyer

Date

Accounts and Explanation

Debit $

Credit $

May 11

Purchase

$40,000

Accounts payable

$40,000

May 11

Freight-in

345

Cash

345

May 12

Accounts payable

1,400

Purchase return and allowance

1,400

May 20

Accounts payable

38,600

Purchase discount

1,158

Cash

37,442

$80,345

$80,345

Step 3: Journal entries for the seller

Date

Accounts and Explanation

Debit $

Credit $

May 11

Accounts receivable

$40,000

Sales revenue

$40,000

May 12

Sales return and allowance

1,400

Accounts receivable

1,400

May 20

Cash

37,442

Sales discount

1,158

Accounts receivable

38,600

$80,000

$80,000

Most popular questions for Business-studies Textbooks

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.

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