Question

Sydney Retailing (buyer) and Troy Wholesalers (seller) enter into the following transactions.
  

May		11		Sydney accepts delivery of $20,500 of merchandise it purchases for resale from Troy: invoice dated May 11, terms 3/10, n/90, FOB shipping point. The goods cost Troy $13,735. Sydney pays $460 cash to Express Shipping for delivery charges on the merchandise.
		12		Sydney returns $1,300 of the $20,500 of goods to Troy, who receives them the same day and restores them to its inventory. The returned goods had cost Troy $871.
		20		Sydney pays Troy for the amount owed. Troy receives the cash immediately.

(Both Sydney and Troy use a perpetual inventory system and the gross method.)

1. Prepare journal entries that Sydney Retailing (buyer) records for these three transactions.

• 1

  Sydney accepts delivery of $20,500 of merchandise it purchases for resale from Troy: invoice dated May 11, terms 3/10, n/90, FOB shipping point. The goods cost Troy $13,735.

• 2

  Sydney pays $460 cash to Express Shipping for delivery charges on the merchandise.

• 3

  Sydney returns $1,300 of the $20,500 of goods to Troy, who receives them the same day and restores them to its inventory. The returned goods had cost Troy $871.

• 4

  Sydney pays Troy for the amount owed. Troy receives the cash immediately.

2. Prepare journal entries that Troy Wholesalers (seller) records for these three transactions.

• 1

  Record the merchandise sold on account.

• 2

  Record the cost of goods sold.

• 3

  Record the sales return.

• 4

  Record the cost of sales return.

• 5

  Record the cash collected for credit sales.

Answer 1

1. The following are the journal entries that Sydney Retailing (buyer) records for these three transactions.

Date	Account Title	Debit($)	Credit($)
May 11	Merchandise Inventory	20,500
	Accounts Payable		20,500
	(Being Acceptance of Merchandise purchased by Sydney)
May 11	Merchandise Inventory	4,60
	Cash		4,60
	(Being shipping charges on merchandise paid by Sydney)
May 12	Accounts Payable	1,300
	Merchandise Inventory		1,300
	(Being goods returned by Sydney to Troy)
May 20	Accounts Payable ($20,500-1300)	19,200
	Merchandise Inventory ($19,200*3%)		576
	Cash ($19200*97%)		18,624

2) Preparation of journal entries that Troy Wholesalers (seller) records for these three transactions.

Date	Accounts Title	Debit($)	Credit($)
May 11	Accounts Receivable	20,500
	Sales		20,500
	(Being Recording of the merchandise sold ).
May 11	Cost of Goods Sold	13,735
	Merchandise Inventory		13,735
	(Recording of the cost of goods sold.)
May 12	Sales Return	1,300
	Account Receivable		1,300
	(Recording of the sales return.)
May 12	Merchandise Inventory	871
	Cost of Goods Sold		871
	(Recording the cost of sales return.)
May 20	Cash	18,624
	Sales Discount	576
	Accounts Receivable		19,200
	(Recording of the cash collected for credit sales.)

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