Question

Required information

Use the following information for the Exercises below.

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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 1,000 units at a price of $11 cash per unit (for a total cost of $11,000).
		5		Allied sold 500 of the units in inventory for $15 per unit (invoice total: $7,500) to Macy Co. under credit terms 2/10, n/60. The goods cost Allied $5,500.
		7		Macy returns 50 units because they did not fit the customer’s needs (invoice amount: $750). Allied restores the units, which cost $550, to its inventory.
		8		Macy discovers that 50 units are scuffed but are still of use and, therefore, keeps the units. Allied sends Macy a credit memorandum for $350 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.

Exercise 4-4 Recording sales, sales returns, and sales allowances LO P2

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.)

Transaction list.

• 1

  Allied made its first and only purchase of inventory for the period on May 3 for 1,000 units at a price of $11 cash per unit (for a total cost of $11,000).

• 2

  Allied sold 500 of the units in inventory for $15 per unit (invoice total: $7,500) to Macy Co. under credit terms 2/10, n/60.

• 3

  Record the cost of goods sold.

• 4

  Macy returns 50 units because they did not fit the customer’s needs (invoice amount: $750).

• 5

  Allied restores the units, which cost $550, to its inventory.

• 6

  Macy discovers that 50 units are scuffed but are still of use and, therefore, keeps the units. Allied sends Macy a credit memorandum for $350 toward the original invoice amount to compensate for the damage.

• 7

  Allied receives payment from Macy for the amount owed on the May 5 purchase; payment is net of returns, allowances, and any cash discount.

Answer 1

		Debit	Credit
May 03	Merchandise inventory	11000
	Cash		11000
May 05	Accounts receivable	7500
	Sales		7500
May 05	Cost of goods sold	5500
	Merchandise inventory		5500
May 07	Sales returns and allowances	750
	Accounts receivable		750
May 07	Merchandise inventory	550
	Cost of goods sold		550
May 08	Sales returns and allowances	350
	Accounts receivable		350
May 15	Cash	6272
	Sales discounts	128		=6400*2%
	Accounts receivable		6400	=7500-750-350