In: Accounting
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.)
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) |