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In: Accounting

Allied Merchandisers was organized on May 1. Macy Co. is a major customer (buyer) of Allied...

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 3,000 units at a price of $8 cash per unit (for a total cost of $24,000).
5 Allied sold 1,500 of the units in inventory for $12 per unit (invoice total: $18,000) to Macy Co. under credit terms 2/10, n/60. The goods cost $12,000 to Allied.
7 Macy returns 150 units because they did not fit the customer’s needs (invoice amount: $1,800). Allied restores the units, which cost $1,200, to its inventory.
8 Macy discovers that 150 units are scuffed but are still of use and, therefore, keeps the units. Allied sends Macy a credit memorandum for $600 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.)

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Expert Solution

Solution:

Journal Entries - Allied Merchandisers
Event Particulars Debit Credit
3-May Inventory Dr $24,000.00
       To Accounts payable $24,000.00
(To record inventory purchase)
5-May Accounts receivables - Macy Dr $18,000.00
       To Sales revenue $18,000.00
(To record sales on account)
5-May Cost of goods sold Dr $12,000.00
       To Merchandise Inventory $12,000.00
(To record cost of goods sold)
7-May Sales returns and allowances Dr $1,800.00
       To Accounts receivables - Macy $1,800.00
(To record sales return)
7-May Merchandise inventory Dr $1,200.00
       To Cost of goods sold $1,200.00
(Being goods returned taken into inventory)
8-May Sales returns and allowances Dr $600.00
       To Accounts receivables - Macy $600.00
(Being allowance given to customer)
15-May Cash Dr $15,288.00
Sales discount Dr $312.00
       To Accounts receivables - Macy $15,600.00
(To record collection from customer)

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