Question

Use the following information for the Exercises below.

[The following information applies to the questions displayed below.]

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 $10 cash per unit (for a total cost of $20,000).
		5		Allied sold 1,000 of the units in inventory for $14 per unit (invoice total: $14,000) to Macy Co. under credit terms 2/10, n/60. The goods cost Allied $10,000.
		7		Macy returns 100 units because they did not fit the customer’s needs (invoice amount: $1,400). Allied restores the units, which cost $1,000, 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 $600 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.)

Answer 1

Answer: Debit Credit 20,000 20,000 14,000 14,000 10,000 10,000 1,400 Date Accounts Titles & Explanation May 03 Merchandise Inventory Cash May 05 Accounts Receivable Sales May 05 Cost of Goods Sold Merchandise Inventory May 07 Sales Returns and Allowances Accounts Receivable May 07 Merchandise Inventory Cost of Goods Sold May 08 Sales Returns and Allowances Accounts Receivable May 15 Cash Sales Discount ($12,000 * 2%) Accounts Receivable ($14,000 - $1,400 - $600) 1.400 1,000 1,000 600 600 11,760 240 12,000