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Nov. 1 Dollar Store purchases merchandise for $1,400 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 $150 of defective merchandise purchased on November 1, and paid for on November 5, for a cash refund. 10 Dollar Store pays $70 cash for transportation costs for the November 1 purchase. 13 Dollar Store sells merchandise for $1,512 with terms n/30. The cost of the merchandise is $756. 16 Merchandise is returned to the Dollar Store from the November 13 transaction. The returned items are priced at $260 and cost $130; 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.

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Answer:

The Journal entries are as follows:

(i) On November 1,

Merchandise Inventory A/c Dr. $1,400

          To Accounts Payable                 $1,400

(To record the merchandise purchases)

(ii) On November 5,

Accounts Payable A/c Dr. $1,400

         To Merchandise Inventory      $1,372

         To Cash(2% × $1,400)              $28

(To record the cash payment)

(iii) On November 7,

Cash A/c Dr. $147

    To Merchandise Inventory(98% × $150) $147

(To record the returned inventory)

(iv) On November 10,

Merchandise inventory A/c Dr. $70

               To cash                                $70

(To record the transportation costs)

(v) On November 13,

Account receivable A/c Dr. $1,512

              To sales                            $1,512

(To record the sales on account)

(vi) On November 13,

Cost of goods sold A/c Dr. $756

            To Merchandise inventory    $756

(To record the cost of goods sold)

(vii) On November 16,

Sales return & allowances A/c Dr. $260

             To Account receivable               $260

(To record the returned items)

(viii) On November 16,

Merchandise inventory A/c Dr. $130

            To cost of goods sold     $130

(To record the returned Merchandise inventory)

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