Latona Hardware Store completed the following merchandising transactions in the month of May. At...

Question:

Latona Hardware Store completed the following merchandising transactions in the month of May. At the beginning of May, the ledger of Latona showed Cash of $4,550 and Common Stock of $4,550.

May 1 Purchased merchandise on account from Gray's Wholesale Supply $4,300, terms 1/10, n/30.
2 Sold merchandise on account $1,700, terms 2/10, n/30. The cost of the merchandise sold was $1,300
5 Received credit from Gray's Wholesale Supply for merchandise returned $200
9 Received collections in full, less discounts, from customers billed on sales of $1,700 on May 2
10 Paid Gray's Wholesale Supply in full, less discount
11 Purchased supplies for cash $370
12 Purchased merchandise for cash $1,300
15 Received refund for poor quality merchandise from a supplier on cash purchase $180
17 Purchased merchandise from Amland Distributors $1,100, FOB shipping point, terms 2/10, n/30
19 Paid freight on May 17 purchase $130
24 Sold merchandise for cash $2,900, the merchandise sold had a cost of $1,960
25 Purchased merchandise from Horvath, Inc. $560, FOB destination, terms 2/10, n/30
27 Paid Amland Distributors in full, less discount
29 Made refunds to cash customers for defective merchandise $60. The returned merchandise had a fair value of $30
31 Sold merchandise on account $1,120, terms n/30, the cost of the merchandise sold was $580

Latona Hardware's chart of accounts includes the following: No. 101 Cash, No. 112 Accounts Receivable, No. 120 Inventory, No. 126 Supplies, No. 201 Accounts Payable, No. 311 Common Stock, No. 401 Sales Revenue, No. 412 Sales Returns and Allowances, No. 414 Sales Discounts, and No. 505 Cost of Goods Sold.

A) Journalize the transactions using a perpetual inventory system.

B) Enter the beginning cash and common stock balances and post the transactions.

Merchandising Business

Merchandising is a type of business engaged in buy and sell activity. It does not manufacture its own product thus it does not have work in process and finishes inventory account. It only records the merchandise inventory and cost of goods sold account.

Answer and Explanation:

A.

Date Account Debit Credit
May 1 Merchandise 4,300
AP 4,300
to record purchase of merchandise
May 2 AR 1,700
Sales 1,700
COGS 1,300
Merchandise 1,300
to record sales on account
May 5 AP 200
Merchandise 200
to record return of merchandise
May 9 Cash 1,666
Sales Discount 34
AR 1,700
to record receipts within the discount period
May 10 AP 4,100
Cash 4,059
Purchase Discount 41
to record payment within the discount period
May 11 Supplies 270
Cash 270
to record purchase in cash
May 12 Merchandise 1,300
Cash 1,300
to record purchase in cash
May 15 Cash 180
Merchandise 180
to record refund
May 17 Merchandise 1,100
AP 1,100
to record purchase on account
May 19 Freight In 130
Cash 130
to record payment of freight
May 24 Cash 2,900
Sales 2,900
COGS 1,960
Merchandise 1,960
to record sales on cash
May 25 Merchandise 560
AP 560
to record purchase on account
May 27 AP 1,100
Cash 1,078
Purchase Discount 22
to record payment within the discount period
May 29 Sales Return 60
Cash 60
Merchandise 30
COGS 30
to record sales return
May 31 AR 1,130
Sales 1,130
COGS 580
Merchandise 580
to record sales on account

//

B.

Cash 2,399
Merchandise 3,600
AR 1,130
Supplies 270
AP 560
Common Stocks 4,550
NI 2,289

Learn more about this topic:

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Merchandising Business: Definition & Examples

from Principles of Marketing: Help and Review

Chapter 1 / Lesson 8
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