Question

Following are the merchandising transactions of Dollar Store.

Nov.		1		Dollar Store purchases merchandise for $2,600 on terms of 2/5, n/30, FOB shipping point, invoice dated November 1.
		5		Dollar Store pays cash for the November 1 purchase.
		7		Dollar Store discovers and returns $100 of defective merchandise purchased on November 1, and paid for on November 5, for a cash refund.
		10		Dollar Store pays $130 cash for transportation costs for the November 1 purchase.
		13		Dollar Store sells merchandise for $2,808 with terms n/30. The cost of the merchandise is $1,404.
		16		Merchandise is returned to the Dollar Store from the November 13 transaction. The returned items are priced at $245 and cost $123; the items were not damaged and were returned to inventory.

Journalize the above merchandising transactions for the Dollar Store assuming it uses a perpetual inventory system and the gross method.

Answer 1

Ans:

1. To record the purchase of inventory on invoice the entry will be debit to inventory account and credit to accounts payable:

Date	Transaction	Debir ($)	Credit($)
Nov. 1	Merchandise Inventory	2,600
	Accounts payable		2,600

2. To record the payment of merchandise inventory:

Accounts payable will be debited by the full invoice amount i.e. $2,600

Since, the payment is made within 5 days from the date of purchase, according to the conditions, the discount will be $2,600*2%= $52

the cash will be credited by $2,548 (2600-52)

Date	Transaction	Debir ($)	Credit($)
Nov 5	Accounts payable	2,600
	Merchandise inventory		52
	Cash		2,548

3. To record this transaction, the amount will be calculated by the formula= Returned merchandise- (Returned merchandise*discount %)

= $100-(100*2%)

=$98

Date	Transaction	Debir ($)	Credit($)
Nov 7	Cash	98
	Merchandise Inventory		98

4. To record transportation cost:

Date	Transaction	Debir ($)	Credit($)
Nov 10	Merchandise inventory	130
	Cash		130

5. To record the sale of merchandise there will be 2 entries:

Date	Transaction	Debir ($)	Credit($)
Nov 13	Accounts receivable	2,808
	Sales		2,808

Date	Transaction	Debir ($)	Credit($)
Nov 13	Cost of goods sold	1,404
	Merchandise Inventory		1,404

6 There will be 2 entries to record the return of inventory:

Date	Transaction	Debir ($)	Credit($)
Nov 16	Sales retuns and allowances	245
	Accounts receivable		245

Date	Transaction	Debir ($)	Credit($)
Nov 16	Merchandise Inventory	123
	Cost of goods sold		123