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 1,000 units at a price of $10 cash per unit (for a total cost of $10,000).
		5		Allied sold 500 of the units in inventory for $14 per unit (invoice total: $7,000) to Macy Co. under credit terms 2/10, n/60. The goods cost Allied $5,000.
		7		Macy returns 50 units because they did not fit the customer’s needs (invoice amount: $700). Allied restores the units, which cost $500, to its inventory.
		8		Macy discovers that 50 units are scuffed but are still of use and, therefore, keeps the units. Allied gives a price reduction (allowance) and credits Macy's accounts receivable for $300 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.

Answer 1

May 03	Merchandise inventory	10000
	Cash		10000
May 05	Accounts receivable	7000
	Sales		7000
May 05	Cost of goods sold	5000
	Merchandise inventory		5000
May 07	Sales returns and allowances	700
	Accounts receivable		700
May 07	Merchandise inventory	500
	Cost of goods sold		500
May 08	Sales returns and allowances	300
	Accounts receivable		300
May 15	Cash	5880
	Sales discounts	120		=6000*2%
	Accounts receivable		6000