Question

Allied Parts was organized on May 1, 2015, and made its first purchase of merchandise on May 3. The purchase was for 1,100 units at a price of $11 per unit. On May 5, Allied Parts sold 660 of the units for $15 per unit to Baker Co. Terms of the sale were 2/10, n/60.

  

a.	On May 7, Baker returns 231 units because they did not fit the customer's needs. Allied Parts restores the units to its inventory.
b.	On May 8, Baker discovers that 55 units are damaged but are still of some use and, therefore, keeps the units. Allied Parts sends Baker a credit memorandum for $385 to compensate for the damage.
c.	On May 15, Baker discovers that 66 units are the wrong color. Baker keeps 40 of these units because Allied Parts sends a $86 credit memorandum to compensate. Baker returns the remaining 26 units to Allied Parts. Allied Parts restores the 26 returned units to its inventory.

  

Prepare entries for Allied Parts to record the May 5 sale and each of the above separate transactions using a perpetual inventory system.

Answer 1

Required Journal Entries are shown as follows:-

  Allied Parts

Journal Entries (Amount in $)

Date	Account Titles and Explanation	Debit	Credit
May 5	Accounts Receivable	9,900
	Sales Revenue (660 units*$15 per unit)		9,900
	(To record the sales of merchandise on account)
May 5	Cost of good sold (660 units*$11 per unit)	7,260
	Merchandise Inventory		7,260
	(To record the cost of goods sold)
May 7	Sales returns and allowances (231 units*$15 per unit)	3,465
	Accounts Receivable		3,465
	(To record the goods returned)
May 7	Merchandise Inventory (231 units*$11 per unit)	2,541
	Cost of goods sold		2,541
	(To record the inventory restored)
May 8	Sales returns and allowances	385
	Accounts Receivable		385
	(To record the compensation given for damages)
May 15	Sales returns and allowances [$86+(26*$15)]	476
	Accounts Receivable		476
	(To record the return from customer and allowances)
May 15	Merchandise Inventory (26 units*$11 per unit)	286
	Cost of goods sold		286
	(To record the cost of inventory restored)