Question

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 $9 cash per unit (for a total cost of $27,000).

5 Allied sold 1,500 of the units in inventory for $13 per unit (invoice total: $19,500) to Macy Co. under credit terms 2/10, n/60. The goods cost $13,500 to Allied.
7 Macy returns 150 units because they did not fit the customer’s needs (invoice amount: $1,950). Allied restores the units, which cost $1,350, 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 $750 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.)

Answer 1

The transactions were recorded as journal entries for Allied using a perpetual inventory system and the gross method, detailing the purchase of inventory, sale on account, return of inventory, allowance for damages, and receipt of payment.

Step-by-step explanation:

Let's prepare the journal entries for Allied, assuming a perpetual inventory system and the gross method:

1. Purchase of Inventory on May 3:
   Debit Inventory $27,000
   Credit Cash $27,000
2. Sale on Account to Macy Co. on May 5:
   Debit Accounts Receivable $19,500
   Credit Sales Revenue $19,500
   Debit Cost of Goods Sold $13,500
   Credit Inventory $13,500
3. Return of Inventory on May 7:
   Debit Sales Returns and Allowances $1,950
   Credit Accounts Receivable $1,950
   Debit Inventory $1,350
   Credit Cost of Goods Sold $1,350
4. Allowance for Scuffed Units on May 8:
   Debit Sales Allowances $750
   Credit Accounts Receivable $750
5. Receipt of Payment on May 15:
   The exact entry depends on the final amount paid by Macy after accounting for returns, allowances, and possible cash discounts. Assume the payment is on time and Macy takes the 2% discount:
   Credit Accounts Receivable (net of returns, allowances, any cash discount)
   Debit Cash for the discounted amount
   Debit Sales Discounts for the discount amount

Note: The entries for receiving payment would need to be calculated based on the exact amounts after returns and allowances and then discount applied. The entries provided are a conceptual guideline.

Answer 2

Step-by-step explanation:

May 3

Dr merchandise inventory 27,000

Cr Cash 27,000

May 5

Dr Accounts receivable 19,500

Cr Sales 19,500

May 5

Dr COGS 13,500

Cr Merchandise inventory 13,500

May 7

Dr Sales returns and allowances 1,950

Cr Accounts receivable 1950

Dr Merchandise inventory 1350

Cr COGS 1350

May 8

Dr Sales returns and allowances 750

Cr Accounts receivable 750

May 15

Dr Cash 16464

Dr Sales discount 336

Cr Account receivable 16800

19500-1950-750 = 16800

16800*2% = 336