Prepare Journal Entries to Record the Following Merchandising Transactions of Margin

question 104

Essay

Prepare journal entries to record the following merchandising transactions of Margin Company,which applies the perpetual inventory system and the gross method of recording invoices.Margin Company offers all of its credit customers credit terms of 2/10,n/30.
$$\begin{array} { | l | l | } \hline \text { May } 1 & \begin{array} { l } \text { Purchased merchandise from Craft Company for } \$ 7,800 \text { under credit terms } \\\text { of } 1 / 10 , \mathrm { n } / 30 , \mathrm { FOB } \text { shipping point, invoice dated May } 1 .\end{array} \\\hline \text { May } 2 & \begin{array} { l } \text { Purchased merchandise from Bow Company for } \$ 10,600 \text { under credit terms } \\\text { 2/05, } \mathrm { n } / 20 , \mathrm { FOB } \text { destination. }\end{array} \\\hline \text { May } 4 & \begin{array} { l } \text { Paid } \$ 300 \text { cash for the freight charges on the May } 1 \text { purchase of } \\\text { merchandise. }\end{array} \\\hline \text { May } 5 & \begin{array} { l } \text { Received an } \$ 800 \text { credit memorandum from Craft Company for the return } \\\text { of part of the merchandise purchased on May } 1 .\end{array} \\\hline \text { May 6 } & \text { Paid Bow Company the balance due within the discount period. } \\\hline \text { May 11 } & \text { Paid Craft Company the balance due within the discount period. }\\\hline \end{array}$$

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Definitions:

Net Income

The amount of earnings after all expenses and taxes have been deducted from revenue.

Ending Inventory

The cumulative worth of merchandise ready for purchase at the closure of a financial period.

LIFO Method

Last In, First Out method; an inventory valuation technique where the latest items added to the inventory are the first to be sold.

Cost of Merchandise Sold

The total cost incurred to purchase or produce the goods sold by a company during a specific period.