Ch. 5 Fundamentals of Accounting Problem 5-2a

Prepare journal entries to record the following merchandising transactions of Sheng Company, which applies the perpetual inventory system. (Hint: It will help to identify each receivable and payable; for example, record the purchase on August 1 in Accounts Payable-Arotek.)

Aug. 1- Purchased merchandise from Arotek Company for $7,500 under credit terms of 1/10, n/30, FOB destination, invoice dated August 1.

August 5- Sold merchandise to Laird Corp. for $5,200 under credit terms of 2/10, n/60, FOB destination, invoice dated August 5. The merchandise had cost $4,000.

August 8- Purchased merchandise from Waters Corporation for $5,400 under credit terms of 1/10, n/45, FOB shipping point, invoice dated August 8. The invoice showed that at Sheng's request, Waters paid the $140 shipping charges and added that amount to the bill. (Hint: Discounts are not applied to freight and shipping charges.)

August 9- Paid $125 cash for shipping charges related to the august 5 sale to Laird Corp.

August 10- Laird returned merchandise from the August 5 sale that had cost Sheng $400 and been sold for $600. The merchandise was restored to inventory.

August 12- After negotiations with Waters Corp. concerning problems with the merchandise purchased on August 8, Sheng received a credit memorandum from Waters granting a price reduction to $700.

August 14- At Arotek's request, Sheng paid $200 cash for freight charges on the August 1 purchase, reducing the amount owed to Arotek.

August 15- Received balance due from Laird Corp. for the August 5 sale less the return on August 10.

August 18- Paid the amount due Waters Corp. for the August 8 purchase less the price reduction granted.

August 19- Sold merchandise to Tux Co. for $4,800 under credit terms of 1/10, n/30, FOB shipping point, invoice dated August 19. The merchandise had cost $2,400.

August 22- Tux requested a price reduction on the August 19 sale because the merchandise did not meet specifications. Sheng sent Tux a $500 credit memorandum to resolve the issue.

August 29- Received Tux's cash payment for the amount due from the August 19 sale.

August 30- Paid Arotek Company the amount due from the August 1 purchase.