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 2,000 units at a price of $10 cash per unit (for a total cost of $20,000).

 5 Allied sold 1,see of the units in inventory for $14 per unit (invoice total: 321,000) to Macy Co. under credit terms 2/10, n/60. The goods cost Allied $15, 000.

 7 Macy returns 125 units because they did not fit the customer's needs (invoice amount: $1,750). Allied restores the units, which cost $1,250, to its inventory.

 8 Macy discovers that 200 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.

1. Prepare journal entries to record the following transactions for Allied assuming it uses a perpetual inventory system and the gross method.

 1 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).

 2 Allied sold 1,500 of the units in inventory for $14 per unit (invoice total: $21,000) to Macy Co. under credit terms 2/10, n/60.

 3 Record the cost of goods sold. Macy returns 125 units because they did not fit the customer's needs (invoice amount: $1,750).

 5 Allied restores the units, which cost $1,250, to its inventory.

 6 Macy discovers that 200 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.

 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.

2. Prepare the appropriate journal entries for Macy Co. to record each of the May transactions. Macy is a retailer that uses the gross method and a perpetual inventory system, and purchases these units for resale. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.)

Answer 1

Solution 1:

Journal Entries - Allied Merchandisers
Event	Particulars	Debit	Credit
3-May	Inventory Dr	$20,000.00
	To Accounts payable		$20,000.00
	(To record inventory purchase)
5-May	Accounts receivables - Macy Dr	$21,000.00
	To Sales revenue		$21,000.00
	(To record sales on account)
5-May	Cost of goods sold Dr	$15,000.00
	To Merchandise Inventory		$15,000.00
	(To record cost of goods sold)
7-May	Sales returns and allowances Dr	$1,750.00
	To Accounts receivables - Macy		$1,750.00
	(To record sales return)
7-May	Merchandise inventory Dr	$1,250.00
	To Cost of goods sold		$1,250.00
	(Being goods returned taken into inventory)
8-May	Sales returns and allowances Dr	$300.00
	To Accounts receivables - Macy		$300.00
	(Being allowance given to customer)
15-May	Cash Dr	$18,571.00
	Sales discount Dr	$379.00
	To Accounts receivables - Macy		$18,950.00
	(To record collection from customer)

Solution 2:

Journal Entries - Macy Co
Date	Particulars	Debit	Credit
3-May	No Journal Entry Required
5-May	Inventory Dr	$21,000.00
	To Accounts payable		$21,000.00
	(To record purchase of inventory on account)
7-May	Accounts payable Dr	$1,750.00
	To Inventory		$1,750.00
	(To record purchase returns)
8-May	Accounts payable Dr	$300.00
	To Inventory		$300.00
	(Being allowance received for damaged goods)
15-May	Accounts payable Dr	$18,950.00
	To Cash		$18,571.00
	To Inventory		$379.00
	(To record payment to supplier)