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 $9 cash per unit (for a total cost of $18,000).

 5 Allied sold 1,000 of the units in inventory for $13 per unit (invoice total: $13,000) to Macy co. under credit terms 2/10, n/60. The goods cost $9,000 to Allied.

 7 Macy returns 100 units because they did not fit the customer's needs (invoice amount: $1, 300). Allied restores the units, which cost $900, 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 $500 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.

Answer 1

SOLUTION

Following journal entries should be prepared to record the given transactions-

Date	Accounts titles and Explanation	Debit ($)	Credit ($)
May 3	Merchandise inventory	18,000
	Cash		18,000
May 5	Accounts receivable	13,000
	Sales		13,000
	Cost of goods sold	9,000
	Merchandise inventory		9,000
May 7	Sales returns and allowances	1,300
	Accounts receivable		1,300
	Merchandise inventory	900
	Cost of goods sold		900
May 8	Sales returns and allowances	500
	Accounts receivable		500
May 15	Cash	15,876
	Sales discounts	324
	Accounts receivable		16,200

Accounts receivable after recording sales returns and allownaces

=$18,000 - $1,300 - $500 = $16,200

Sales discount = $16,200*2% = $324