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 $11 cash per unit (for a total cost of $22,000). 5 Allied sold 1,000 of the units in inventory for $15 per unit (invoice total: $15,000) to Macy Co. under credit terms 2/10, n/60. The goods cost Allied $11,000. 7 Macy returns 100 units because they did not fit the customer’s needs (invoice amount: $1,500). Allied restores the units, which cost $1,100, 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 $700 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. 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.)

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

Allied Merchandisers

Date	General Journal	Debit	Credit
May-03	Merchandise inventory	22000
	Cash		22000
	(To record merchandise inventory purchased)
May-05	Accounts receivable	15000
	Sales		15000
	(To record sales on account)
May-05	Cost of goods sold	11000
	Merchandise inventory		11000
	(To record the cost of sales)
May-07	Sales returns and allowances	1500
	Accounts receivable		1500
	(To record sales returns)
May-07	Merchandise inventory	1100
	Cost of goods sold		1100
	(To record cost of goods returned)
May-08	Sales returns and allowances	700
	Accounts receivable		700
	(To record credit memorandum sent)
May-15	Cash ($12800 - $256)	12544
	Sales discounts (2% x $12800)	256
	Accounts receivable ($15000 - $1500 - $700)		12800
	(To record collection on account)

Macy Co.

Date	General Journal	Debit	Credit
May-03	No journal entry required
May-05	Merchandise inventory	15000
	Accounts payable		15000
	(To record merchandise inventory purchased on account)
May-07	Accounts payable	1500
	Merchandise inventory		1500
	(To record purchase returns)
May-08	Accounts payable	700
	Merchandise inventory		700
	(To record credit memorandum received)
May-15	Accounts payable ($15000 - $1500 - $700)	12800
	Merchandise inventory (2% x $12800)		256
	Cash		12544
	(To record payment on account)