Aug. 1 Purchased merchandise from Abilene Company for $5,100 under credit terms of 1/10, n/30, FOB destination, invoice dated August 1. 4 At Abilene's request, Stone paid $110 cash for freight charges on the August 1 purchase, reducing the amount owed to Abilene. 5 Sold merchandise to Lux Corp. for $3,570 under credit terms of 2/10, n/60, FOB destination, invoice dated August 5. The merchandise had cost $2,549. 8 Purchased merchandise from Welch Corporation for $4,400 under credit terms of 1/10, n/45, FOB shipping point, invoice dated August 8. The invoice showed that at Stone’s request, Welch paid the $240 shipping charges and added that amount to the bill. (Hint: Discounts are not applied to freight and shipping charges.) 9 Paid $190 cash for shipping charges related to the August 5 sale to Lux Corp. 10 Lux returned merchandise from the August 5 sale that had cost Stone $425 and been sold for $595. The merchandise was restored to inventory. 12 After negotiations with Welch Corporation concerning problems with the merchandise purchased on August 8, Stone received a credit memorandum from Welch granting a price reduction of $664. 15 Received balance due from Lux Corp. for the August 5 sale less the return on August 10. 18 Paid the amount due Welch Corporation for the August 8 purchase less the price reduction granted. 19 Sold merchandise to Trax Co. for $3,060 under credit terms of 1/10, n/30, FOB shipping point, invoice dated August 19. The merchandise had cost $2,124. 22 Trax requested a price reduction on the August 19 sale because the merchandise did not meet specifications. Stone sent Trax a $510 credit memorandum to resolve the issue. 29 Received Trax's cash payment for the amount due from the August 19 sale. 30 Paid Abilene Company the amount due from the August 1 purchase. Prepare the necessary journal entries for Stone Company, which is a merchandising company that uses the perpetual system. (Hint: It will help to identify each receivable and payable; for example, record the purchase on August 1 in Accounts Payable—Abilene.)

Aug.	1	Purchased merchandise from Abilene Company for $5,100 under credit terms of 1/10, n/30, FOB destination, invoice dated August 1.
	4	At Abilene's request, Stone paid $110 cash for freight charges on the August 1 purchase, reducing the amount owed to Abilene.
	5	Sold merchandise to Lux Corp. for $3,570 under credit terms of 2/10, n/60, FOB destination, invoice dated August 5. The merchandise had cost $2,549.
	8	Purchased merchandise from Welch Corporation for $4,400 under credit terms of 1/10, n/45, FOB shipping point, invoice dated August 8. The invoice showed that at Stone’s request, Welch paid the $240 shipping charges and added that amount to the bill. (Hint: Discounts are not applied to freight and shipping charges.)
	9	Paid $190 cash for shipping charges related to the August 5 sale to Lux Corp.
	10	Lux returned merchandise from the August 5 sale that had cost Stone $425 and been sold for $595. The merchandise was restored to inventory.
	12	After negotiations with Welch Corporation concerning problems with the merchandise purchased on August 8, Stone received a credit memorandum from Welch granting a price reduction of $664.
	15	Received balance due from Lux Corp. for the August 5 sale less the return on August 10.
	18	Paid the amount due Welch Corporation for the August 8 purchase less the price reduction granted.
	19	Sold merchandise to Trax Co. for $3,060 under credit terms of 1/10, n/30, FOB shipping point, invoice dated August 19. The merchandise had cost $2,124.
	22	Trax requested a price reduction on the August 19 sale because the merchandise did not meet specifications. Stone sent Trax a $510 credit memorandum to resolve the issue.
	29	Received Trax's cash payment for the amount due from the August 19 sale.
	30	Paid Abilene Company the amount due from the August 1 purchase.

  

Prepare the necessary journal entries for Stone Company, which is a merchandising company that uses the perpetual system. (Hint: It will help to identify each receivable and payable; for example, record the purchase on August 1 in Accounts Payable—Abilene.)

 

 

Explanation:

Aug.	15	Collected receivable within 2% discount period = $60
	18	Merchandise Inventory: (1% × [$4,400 − $664]) = $37
		Cash: ([100% − 1%] × [$4,400 − $664]) + $240 shipping = $3,939
	29	Sales Discounts (1%) = $26
	30	Accounts Payable—Abilene: ($5,100 − $110) = $4,990

The following list includes selected permanent accounts and all of the temporary accounts from the December 31, 2011, unadjusted trial balance of Deacon Co., a business owned by Julie Deacon. Deacon Co. uses a perpetual inventory system. Debit Credit Merchandise inventory $ 26,200 Prepaid selling expenses 5,500 Dividends 2,200 Sales $ 471,600 Sales returns and allowances 17,921 Sales discounts 5,018 Cost of goods sold 232,027 Sales salaries expense 51,876 Utilities expense 15,091 Selling expenses 40,558 Administrative expenses 104,224 Additional Information Accrued sales salaries amount to $1,700. Prepaid selling expenses of $2,200 have expired. A physical count of year-end merchandise inventory shows $25,702 of goods still available. (a) Use the above account balances along with the additional information, prepare the adjusting entries

The following list includes selected permanent accounts and all of the temporary accounts from the December 31, 2011, unadjusted trial balance of Deacon Co., a business owned by Julie Deacon. Deacon Co. uses a perpetual inventory system.

     

		Debit		Credit
Merchandise inventory	$	26,200
Prepaid selling expenses		5,500
Dividends		2,200
Sales			$	471,600
Sales returns and allowances		17,921
Sales discounts		5,018
Cost of goods sold		232,027
Sales salaries expense		51,876
Utilities expense		15,091
Selling expenses		40,558
Administrative expenses		104,224

     

Additional Information

Accrued sales salaries amount to $1,700. Prepaid selling expenses of $2,200 have expired. A physical count of year-end merchandise inventory shows $25,702 of goods still available.

            (a)

Use the above account balances along with the additional information, prepare the adjusting entries.

 

(b)

Use the above account balances along with the additional information, prepare the closing entries.

 

Explanation:

(a)

To record inventory shrinkage ($26,200 − $25,702) = $498.

(b)

Cost of goods sold ($232,027 + $498) = $232,525.

Sales salaries expense ($51,876 + $1,700) = $53,576.

Selling Expenses ($40,558 + $2,200) = $42,758.

Spare Parts was organized on May 1, 2011, and made its first purchase of merchandise on May 3. The purchase was for 1,900 units at a price of $9 per unit. On May 5, Spare Parts sold 1,140 of the units for $13 per unit to DeSoto Co. Terms of the sale were 2/10, n/60. a. On May 7, DeSoto returns 399 units because they did not fit the customer's needs. Spare Parts restores the units to its inventory. b. On May 8, DeSoto discovers that 95 units are damaged but are still of some use and, therefore, keeps the units. Spare Parts sends DeSoto a credit memorandum for $475 to compensate for the damage. c. On May 15, DeSoto discovers that 114 units are the wrong color. DeSoto keeps 68 of these units because Spare Parts sends a $134 credit memorandum to compensate. DeSoto returns the remaining 46 units to Spare Parts. Spare Parts restores the 46 returned units to its inventory. Prepare the appropriate journal entries for DeSoto Co. to record the May 5 purchase and each of the three separate transactions a through c. DeSoto is a retailer that uses a perpetual inventory system and purchases these units for resale.

Spare Parts was organized on May 1, 2011, and made its first purchase of merchandise on May 3. The purchase was for 1,900 units at a price of $9 per unit. On May 5, Spare Parts sold 1,140 of the units for $13 per unit to DeSoto Co. Terms of the sale were 2/10, n/60.

    

a.	On May 7, DeSoto returns 399 units because they did not fit the customer's needs. Spare Parts restores the units to its inventory.
b.	On May 8, DeSoto discovers that 95 units are damaged but are still of some use and, therefore, keeps the units. Spare Parts sends DeSoto a credit memorandum for $475 to compensate for the damage.
c.	On May 15, DeSoto discovers that 114 units are the wrong color. DeSoto keeps 68 of these units because Spare Parts sends a $134 credit memorandum to compensate. DeSoto returns the remaining 46 units to Spare Parts. Spare Parts restores the 46 returned units to its inventory.

     

Prepare the appropriate journal entries for DeSoto Co. to record the May 5 purchase and each of the three separate transactions a through c. DeSoto is a retailer that uses a perpetual inventory system and purchases these units for resale.

 

Explanation:

May 5:

Purchased merchandise on credit (1,140 × $13) = $14,820.

May 7:

Returned unwanted merchandise (399 × $13) = $5,187.

May 15:

To record return of merchandise (46 × $13) = $598.