Question

Following are the merchandising transactions for Dollar Store.

Nov.
1 Dollar Store purchases merchandise for $1,500 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 $200 of defective merchandise purchased
on November 1, and paid for on November 5, for a cash refund.
10 Dollar Store pays $75 cash for transportation costs for the November 1
purchase.
13 Dollar Store sells merchandise for $1,620 with terms n/30. The cost of the
merchandise is $810.
16 Merchandise is returned to the Dollar Store from the November 13
transaction. The returned items are priced at $300 and cost $150; 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

Journal entry are as follows:

Nov 1

Dr Inventory $1,500

CR Accounts payable $1,500

Nov 5

Dr Accounts payable $1,500

Cr Cash $1,470

Cr Purchase discount $30

Nov 7

Dr Cash $196

Dr Purchase discount $4

Cr Inventory $200

Nov 10

Dr Freight-in $75

Cr Cash $75

Nov 13

Dr Accounts receivable $1,620

Cr Sales $1,620

Dr Cost of Sales $810

Cr Inventory $810

Nov 16

Dr Sales returns and allowances $300

Cr Accounts Receivable $300

Dr Inventory $150

Cr Cost of sales $150

Step-by-step explanation:

*Using gross method of perpetual inventory, all purchases and sales are recorded at gross amount and discounts are only recorded when availed.

*Purchase returns made after payment or settlement must also be reverted and deducted to cash amount received.

*During sales, there will be two entries. 1 is to record the sales and accounts receivable and 2 is to record cost of good sold and deduction to inventory.