Allied Merchandisers was organized on May 1 Macy Co is a maj

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 $7 cash per unit (for a total cost of $14,000). 5 Allied sold 1,000 of the units in inventory for $11 per unit (invoice total: $11,000) to Macy Co. under credit terms 2/10, n/60. The goods cost $7,000 to Allied. 7 Macy returns 100 units because they did not fit the customer’s needs (invoice amount: $1,100). Allied restores the units, which cost $700, 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 $300 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

Date

Description

Debit $

Credit $

3-May

Inventory (2000*7)

$14,000

Cash

$14,000

(being purchases recorded)

5-May

Accounts Receivable

$11,000

Sales (1000*11)

$11,000

(being sales on account)

5-May

Cost of Good sold

$7,000

Inventory (1000*7)

$7,000

7-May

Sales Return & Allowances

1100

Accounts Receivable(100*11)

1100

(being sales return recorded)

7-May

Inventory (100*7)

$700

Cost of Good sold

$700

8-May

Sales Return & Allowances

300

Accounts Receivable

300

(Entry for recording of compensation of
damages)

15-May

Cash

$9,408

Sales Discount (9600*2%)

$192

Accounts Receivable
(11000-1100-300)

$9,600

(To record the cash receipt within discount period)