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 3,000 units at a price of $7 cash per unit (for a total cost of $21,000).

 5 Allied sold 1,500 of the units in inventory for $11 per unit (invoice total: $16,500) to Macy Co.

 under credit terms 2/10, n/60. The goods cost Allied $10,500.

 7 Macy returns 150 units because they did not fit the customer's needs (invoice amount: $1, 650). Allied restores the units, which cost $1,050, to its inventory.

 8 Macy discovers that 150 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 $450 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.

 Use the above informations, analyze each transaction by indicating its effects on the income statement-specifically, identify the accounts and amounts (including + or -) for each transaction.

Answer 1

Income statement components	3-May	5-May	7-May	8-May	15-May
Inc/dec	Amount	Inc/dec	Amount	Inc/dec	Amount	Inc/dec	Amount	Inc/dec	Amount
Sales			increase	16500
Sales discount									increase	288
Sales return& allowances					Increase	1650	increase	450
Net sales			increase	16500	decrease	1650	Decrease	450	decrease	288
Cost of goods sold			increase	10500	decrease	1050
Gross profit			increase	6000	decrease	600	Decrease	450	decrease	288
Discount amount= Sales-sales return-allowanceX2%
(16500-1650-450)*2%