Question

The transactions listed below are typical of those involving Amalgamated Textiles and American Fashions. Amalgamated is a wholesale merchandiser and American Fashions is a retail merchandiser. Assume all sales of merchandise from Amalgamated to American Fashions are made with terms n/60, and the two companies use perpetual inventory systems. Assume the following transactions between the two companies occurred in the order listed during the year ended December 31.

a. Amalgamated sold merchandise to American Fashions at a selling price of $270,000. The merchandise had cost Amalgamated $191,000.
b. Two days later, American Fashions returned goods that had been sold to the company at a price of $27,500 and complained to Amalgamated that some of the remaining merchandise differed from what American Fashions had ordered. Amalgamated agreed to give an allowance of $9,000 to American Fashions. The goods returned by American Fashions had cost Amalgamated $19,270.
c. Just three days later, American Fashions paid Amalgamated, which settled all amounts owed

Required:
Required:
For each of the events (a) through (d), indicate the amount and direction of the effect on Amalgamated Textiles

Answer 1

Amalgamated Textiles

Amount and Direction of the Effect on Amalgamated Textiles:

a. Assets (Accounts receivable) will increase $270,000 and Equity (Retained earnings - Sales revenue) will increase $270,000

a. Assets (Inventory) will decrease $191,000 and Equity (Retained earnings - Cost of goods sold) will decrease $191,000

b. Assets (Accounts receivable) will decrease $36,500 and Equity (Retained earnings- Sales returns) will decrease $36,500

b. Assets (Inventory) will increase $19,270 and Equity (Retained earnings- Cost of goods sold) will increase $19,270

c. Assets (Cash) will increase $233,500 Assets (Accounts receivable) will decrease $233,500.

Step-by-step explanation:

1) Data and Analysis:

Sales terms n/60; perpetual inventory systems

a. Accounts receivable (American Fashions) $270,000 Sales revenue $270,000

Cost of goods sold $191,000 Inventory $191,000

b. Sales returns and allowances $36,500 Accounts receivable (American Fashions) $36,500

Inventory $19,270 Cost of goods sold $19,270

c. Cash $233,500 Accounts receivable (American Fashions) $233,500