Question

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 $7,000 under credit terms of 1/10, n/30, FOB destination, invoice dated August 1.

Answer 1

On August 1, Lowe's records a purchase of merchandise on credit from Aron Company by debiting Merchandise Inventory for $7,000 and crediting Accounts Payable—Aron for the same amount.

Step-by-step explanation:

To record the purchase of merchandise on credit from Aron Company for Lowe's, using the perpetual inventory system and the gross method, the journal entry on August 1 would involve debiting Merchandise Inventory and crediting Accounts Payable—Aron. Since the terms are 1/10, n/30, FOB destination, it implies that Lowe's has a discount period of 10 days with the full payment due within 30 days, and the seller assumes the shipping costs.

The journal entry is as follows:

1. Date: August 1
2. Merchandise Inventory DR $7,000
3. Accounts Payable—Aron CR $7,000

This entry records the purchase of goods that Lowe's intends to sell, at the cost that needs to be paid within the specified credit term period.