Question

Journalize the following transactions for Brown Company using the gross method of accounting for sales discounts. Assume a perpetual inventory system. Also, assume a constant gross profit ratio for all items sold. Make sure to enter the day for each separate transaction.

October 4 Sold goods costing $8,400 to Lee Company on account, $14,000, terms 4/10, n/30.
October 10 Lee Company was granted an allowance of $700 for returned merchandise that was previously purchased on account. The returned goods are in perfect condition.
October 14 Received the amount due from Lee Company.

Answer 1

Answer and Explanation:

The Journal entry is shown below:-

1. Accounts receivable Dr, $14,000

To Sales $14,000

(Being sales made is recorded)

2. Cost of goods sold Dr,$8,400

To Merchandise inventory $8,400

(Being cost of goods sold is recorded)

3. Sales return and allowances Dr, $700

To Accounts receivable $700

(Being return of the merchandise is recorded)

4. Merchandise inventory Dr, $420 ($700 × $8,400 ÷ $14,000)

To Cost of goods sold $420

(Being cost of merchandise returned is recorded)

5. Cash Dr, $13,300 ($14,000 - $700)

To Accounts receivable $13,300

(Being receipt of cash is recorded)