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:
For each of the events (a) through (c), indicate the amount and direction of the effect on Amalgamated Textiles in terms of the following items. (Enter any decreases to account balances with a minus sign.) Prepare the journal entries that Amalgamated Textiles would record. TIP: When using a perpetual inventory system, the seller always makes two journal entries when goods are sold. (If no entry is required for a transaction/event, select "No Journal Entry Required" in the first account field.)

Answer 1

Amalgamated Textiles

1. Effects on Items:

a. Assets + (Accounts receivable) $270,000

Retained earnings + (Sales revenue) $270,000

Retained earnings - (Cost of goods sold) $191,000

Assets - (Inventory) $191,000

b. Retained earnings - (Sales returns and allowances) $36,500

Assets - (Accounts receivable) $36,500

Assets + (Inventory) $19,270

Retained earnings + (Cost of goods sold) $19,270

c. Assets + (Cash) $233,500

Assets - (Accounts receivable) $233,500

2. Journal Entries:

a. Debit Accounts receivable $270,000

Credit Sales revenue $270,000

To record the sale of goods on account.

Debit Cost of goods sold $191,000

Credit Inventory $191,000

To record the cost of goods sold.

b. Debit Sales returns and allowances $36,500

Credit Accounts receivable $36,500

To record the return of goods and allowances given.

Debit Inventory $19,270

Credit Cost of goods sold $19,270

To record the return of goods to inventory.

c. Debit Cash $233,500

Credit Accounts receivable $233,500

To record the receipt of cash from customers on account.

Step-by-step explanation:

1) Data and Analysis:

a. Accounts receivable $270,000 Sales revenue $270,000

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

b. Sales returns and allowances $36,500 Accounts receivable $36,500

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

c. Cash $233,500 Accounts receivable $233,500