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Question

Journalize the following transactions for Ramirez Company using the gross method of accounting for sales discounts. Assume a perpetual inventory system. Also, assume a constant gross profit ratio for all items sold. Make sure to enter the day for each separate transaction.

May	9		Sold goods costing $6,000 to Bailey Company on account, $10,000, terms 5/10, n/30.
May	15		Bailey Company was granted an allowance of $800 for returned merchandise that was previously purchased on account. The returned goods are in perfect condition.
May	20		Received the amount due from Bailey Company.

Answer 1

Journal

Date	Account title	Debit	Credit
May 9	Accounts Receivable – Bailey Company	10,000
	Sales		10,000
May 9	Cost of goods sold	6,000
	Inventory		6,000
May 15	Sales returns and allowance	800
	Accounts receivable - Bailey Company		800
May 15	Inventory	480
	Cost of goods sold		480
May 20	Cash	9,200
	Accounts receivable - Bailey Company		9,200

Working note:

Since the payment was made after 10 days, hence no discount will be allowed.

Cost of goods sold = $6,000

Sales = $10,000

Ratio of Cost of goods sold to sales = 6,000/10,000

= 60%

Sales returns = $800

Hence, cost of goods returned = 800 x 60%

= $480

Final amount due = Sales - sales returns

= 10,000 - 800

= $9,200

Kindly comment if you need further assistance.

Thanks‼!