Prepare journal entries to record the following merchandising transactions of Cabela’s, which uses the perpetual inventory system and the gross method. (Hint: It will help to identify each receivable and payable; for example, record the purchase on July 1 in Accounts Payable-Boden.) July 1 Purchased merchandise from Boden company for $6,000 under credit terms of 1/15, n/30, FoB shipping point, invoice dated July 1. 2 Sold merchandise to creek Co. for $900 under credit terms of 2/10, /60 FOB shipping point invoice dated July 2. The merchandise had cost $500 3 Paid $125 cash for freight charges on the purchase of July 1 8 sold merchandise that had cost $1,300 for $1,700 cash. 9 Purchased merchandise from Leight Co. for $2,200 under credit terms of 2/15 n/60 FoB destination invoice dated July 9 11 Received a $200 credit memorandun from Leight Co. for the return of part of the merchandise purchased on July 9. 12 Received the balance due from Creek Co for the invoice dated July 2, net of the discount 16 Paid the balance due to Boden Company within the discount period. 19 sold merchandise that cost $800 to Art Co. for $1,200 under credit terms of 2/15 n/60, FOB shipping point invoice dated July 19. 21 Issued a $100 credit memorandum to Art Co. for an allowance on goods sold on July 19 24 Paid Leight Co. the balance due, net of discount 30 Received the balance due from Art Co. for the invoice dated July 19, net of discount 31 sold merchandise that cost $4,800 to Creek Co. for $7,000 under credit terms of 2/10 n/60, POB shipping point, invoice dated July 31
The Correct Answer and Explanation is :
Journal Entries:
July 1:
- Purchased merchandise from Boden Company:
- Dr. Inventory $6,000
- Cr. Accounts Payable – Boden $6,000
July 2:
- Sold merchandise to Creek Co.:
- Dr. Accounts Receivable – Creek Co. $900
- Cr. Sales Revenue $900
- Dr. Cost of Goods Sold $500
- Cr. Inventory $500
July 3:
- Paid freight charges:
- Dr. Inventory $125
- Cr. Cash $125
July 8:
- Sold merchandise for cash:
- Dr. Cash $1,700
- Cr. Sales Revenue $1,700
- Dr. Cost of Goods Sold $1,300
- Cr. Inventory $1,300
July 9:
- Purchased merchandise from Leight Co.:
- Dr. Inventory $2,200
- Cr. Accounts Payable – Leight $2,200
July 11:
- Returned part of the merchandise to Leight Co.:
- Dr. Accounts Payable – Leight $200
- Cr. Inventory $200
July 12:
- Received payment from Creek Co.:
- Dr. Cash $882
- Dr. Sales Discounts $18
- Cr. Accounts Receivable – Creek Co. $900
July 16:
- Paid Boden Co. within discount period:
- Dr. Accounts Payable – Boden $6,000
- Cr. Cash $5,940
- Cr. Inventory $60
July 19:
- Sold merchandise to Art Co.:
- Dr. Accounts Receivable – Art Co. $1,200
- Cr. Sales Revenue $1,200
- Dr. Cost of Goods Sold $800
- Cr. Inventory $800
July 21:
- Issued credit memorandum to Art Co.:
- Dr. Sales Returns and Allowances $100
- Cr. Accounts Receivable – Art Co. $100
July 24:
- Paid Leight Co. within discount period:
- Dr. Accounts Payable – Leight $2,000
- Cr. Cash $1,960
- Cr. Inventory $40
July 30:
- Received payment from Art Co.:
- Dr. Cash $1,078
- Dr. Sales Discounts $22
- Cr. Accounts Receivable – Art Co. $1,100
July 31:
- Sold merchandise to Creek Co.:
- Dr. Accounts Receivable – Creek Co. $7,000
- Cr. Sales Revenue $7,000
- Dr. Cost of Goods Sold $4,800
- Cr. Inventory $4,800
Explanation:
This set of journal entries reflects the perpetual inventory system, which updates inventory records after each transaction. For purchases, inventory is debited directly, and any applicable discounts reduce its value. Sales are recorded at selling price (credit Sales Revenue) and cost (debit Cost of Goods Sold). Discounts on sales (e.g., Creek Co.) reduce Accounts Receivable and increase Sales Discounts, showing the net cash received. Freight charges for FOB shipping point are added to inventory, while returns and allowances adjust inventory and receivables. This ensures real-time inventory tracking and accurate financial statements.