Allied Merchandisers was organized on May 1. Macy Co. is a major customer (buyer
ID: 2611829 • Letter: A
Question
Allied Merchandisers was organized on May 1. Macy Co. is a major customer (buyer) of Allied (seller) products. May 3 Allied made its first and only purchase of inventory for the period on May 3 for 2,000 units at a price of $7 cash per unit (for a total cost of $14,000). 5 Allied sold 1,000 of the units in inventory for $11 per unit (invoice total: $11,000) to Macy Co. under credit terms 2/10, n/60. The goods cost $7,000 to Allied. 7 Macy returns 100 units because they did not fit the customer’s needs (invoice amount: $1,100). Allied restores the units, which cost $700, to its inventory. 8 Macy discovers that 100 units are scuffed but are still of use and, therefore, keeps the units. Allied sends Macy a credit memorandum for $300 toward the original invoice amount to compensate for the damage. 15 Allied receives payment from Macy for the amount owed on the May 5 purchase; payment is net of returns, allowances, and any cash discount. Prepare journal entries to record the following transactions for Allied assuming it uses a perpetual inventory system and the gross method. (Allied estimates returns using an adjusting entry at each year-end.)
Explanation / Answer
Date
Description
Debit $
Credit $
3-May
Inventory (2000*7)
$14,000
Cash
$14,000
(being purchases recorded)
5-May
Accounts Receivable
$11,000
Sales (1000*11)
$11,000
(being sales on account)
5-May
Cost of Good sold
$7,000
Inventory (1000*7)
$7,000
7-May
Sales Return & Allowances
1100
Accounts Receivable(100*11)
1100
(being sales return recorded)
7-May
Inventory (100*7)
$700
Cost of Good sold
$700
8-May
Sales Return & Allowances
300
Accounts Receivable
300
(Entry for recording of compensation of
damages)
15-May
Cash
$9,408
Sales Discount (9600*2%)
$192
Accounts Receivable
(11000-1100-300)
$9,600
(To record the cash receipt within discount period)
Date
Description
Debit $
Credit $
3-May
Inventory (2000*7)
$14,000
Cash
$14,000
(being purchases recorded)
5-May
Accounts Receivable
$11,000
Sales (1000*11)
$11,000
(being sales on account)
5-May
Cost of Good sold
$7,000
Inventory (1000*7)
$7,000
7-May
Sales Return & Allowances
1100
Accounts Receivable(100*11)
1100
(being sales return recorded)
7-May
Inventory (100*7)
$700
Cost of Good sold
$700
8-May
Sales Return & Allowances
300
Accounts Receivable
300
(Entry for recording of compensation of
damages)
15-May
Cash
$9,408
Sales Discount (9600*2%)
$192
Accounts Receivable
(11000-1100-300)
$9,600
(To record the cash receipt within discount period)
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