Question

Prepare journal entries to record the following transactions for a retail store. The company uses a perpetual inventory system and the gross method. Apr. 2 Purchased $5,600 of merchandise from Lyon Company with credit terms of 2/15, n/60, invoice dated April 2, and FOB shipping point. 3 Paid $290 cash for shipping charges on the April 2 purchase. 4 Returned to Lyon Company unacceptable merchandise that had an invoice price of $650. 17 Sent a check to Lyon Company for the April 2 purchase, net of the discount and the returned merchandise. 18 Purchased $10,500 of merchandise from Frist Corp. with credit terms of 1/10, n/30, invoice dated April 18, and FOB destination. 21 After negotiations, received from Frist a $500 allowance toward the $10,500 owed on the April 18 purchase. 28 Sent check to Frist paying for the April 18 purchase, net of the allowance and the discount.

Answer 1

Answer:

1. Dr Merchandise inventory 5,600

Cr Account payable 5,600

2. Dr Merchandise inventory 290

Cr Cash 290

3. Dr Account payable 650

Cr Merchandise inventory 650

4. Dr Account payable 4,950

Cr Bank 4,851

Cr Merchandise inventory 99

5. Dr Merchandise inventory 10,500

Cr Account payable 10,500

6. Dr Account payable 650

Cr Merchandise inventory 650

7. Dr Account payable 10,500

Cr Cash 10,395

Cr Merchandise inventory 105

Explanation:

Preparation of Journal entries

1. Journal entry to record purchase

Dr Merchandise inventory 5,600

Cr Account payable 5,600

(To record purchase)

2. Journal entry to record shipping charges

Dr Merchandise inventory 290

Cr Cash 290

(To record shipping charges)

3. Journal entry to record purchase return

Dr Account payable 650

Cr Merchandise inventory 650

(To record purchase return)

4. Journal entry to record amount paid

Dr Account payable 4,950

(5,900-650)

Cr Bank 4,851

(4,950*98%)

Cr Merchandise inventory 99

(4,950-4,851)

(To record amount paid)

5. Journal entry to record purchase

Dr Merchandise inventory 10,500

Cr Account payable 10,500

(To record purchase)

6. Journal entry to To record allowance

Dr Account payable 650

Cr Merchandise inventory 650

(5,600-4,950)

(To record allowance)

7. Journal entry to record amount paid

Dr Account payable 10,500

Cr Cash 10,395

(10,500*99%)

Cr Merchandise inventory 105

(10,500-10,395)

(To record amount paid)