Question

On July 2, 2018, Lake Company sold to Sue Black merchandise having a sales price of $9,400 (cost $4,900) with terms of 2/10. n/30. f.o.b. shipping point. Lake estimates that merchandise with a sales value of $800 will be returned. An invoice totaling $140, terms n/30, was received by Black on July 6 from Pacific Delivery Service for the freight cost. Upon receipt of the goods, on July 3, Black notified Lake that $390 of merchandise contained flaws. The same day, Lake issued a credit memo covering the defective merchandise and asked that it be returned at Lake’s expense. Lake estimates the returned items to have a fair value of $130. The freight on the returned merchandise was $30 paid by Lake on July 7. On July 12, the company received a check for the balance due from Black. Collapse question part(a)Prepare journal entries for Lake Company to record all the events noted above assuming sales and receivables are entered at gross selling price.

Answer 1

To record the transactions, Lake Company should make journal entries for the sale, estimate of merchandise returns, invoice for freight, notification of flawed merchandise, credit memo for defective merchandise, return of merchandise, and payment from Black.

Step-by-step explanation:

To record the transactions in the given scenario, the following journal entries should be made:

1. Record the sale:

Accounts Receivable: $9,400

Sales Revenue: $9,400

Cost of Goods Sold: $4,900

Inventory: $4,900

2. Record the estimate of merchandise returns:

Sales Returns and Allowances: $800

Inventory: $800

3. Record the invoice for freight:

Freight-In: $140

Accounts Payable: $140

4. Record the notification of flawed merchandise:

Sales Returns and Allowances: $390

Accounts Receivable: $390

5. Record the credit memo for the defective merchandise:

Accounts Receivable: $130

Inventory: $130

6. Record the return of merchandise:

Inventory: $130

Accounts Payable: $130

7. Record the payment from Black for the balance due:

Accounts Receivable: $8,080

Sales Discounts: $320

Cash: $7,760

These journal entries properly record all the events in the given scenario.