Question

Allied Merchandisers was organized on May 1. Macy Co. is a major customer (buyer) of Allied (seller) products. 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.)

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 $9 cash per unit (for a total cost of $18,000).
		5		Allied sold 1,000 of the units in inventory for $13 per unit (invoice total: $13,000) to Macy Co. under credit terms 2/10, n/60. The goods cost $9,000 to Allied.
		7		Macy returns 100 units because they did not fit the customer’s needs (invoice amount: $1,300). Allied restores the units, which cost $900, 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 $500 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.

Answer 1

Journal entry

In the books of Allied

Date	account and explanation	Debit	Credit
May 3	Merchandise inventory	18000
	Cash		18000
May 5	Account receivable	13000
	Sales revenue		13000
	Cost of goods sold	9000
	Merchandise inventory		9000
May 7	Sales return and allowance	1300
	Account receivable		1300
	Merchandise inventory	900
	Cost of goods sold		900
May 9	Sales return and allowance	500
	Account receivable		500
May 15	Cash (11200*98%)	10976
	Sales discount	224
	Account receivable (13000-1300-500)		11200