Question

Required information Use the following information for the Exercises below. 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 1,000 units at a price of $11 cash per unit (for a total cost of $11,000). 5 Allied sold 500 of the units in inventory for $15 per unit (invoice total: $7,500) to Macy Co. under credit terms 2/10, n/60. The goods cost Allied $5,500. 7 Macy returns 50 units because they did not fit the customer’s needs (invoice amount: $750). Allied restores the units, which cost $550, to its inventory. 8 Macy discovers that 50 units are scuffed but are still of use and, therefore, keeps the units. Allied sends Macy a credit memorandum for $350 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. Exercise 4-5 Recording purchases, purchases returns, and purchases allowances LO P1 Prepare the appropriate journal entries for Macy Co. to record each of the May transactions. Macy is a retailer that uses the gross method and a perpetual inventory system, and purchases these units for resale. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.)

Answer 1

Solution:

1. May 03

No journal entry required

May 05

Merchandise inventory ........................ 7,500

Accounts payable .................................. 7,500

May 07

Accounts payable .......................750

Merchandise inventory ..........................750

May 08

Accounts payable ...............350

Merchandise inventory ................................350

May 15

Accounts payable ..................6,400

Merchandise inventory .....................128

Cash ...............................................6,272

Explanation

May		7:		Returned unwanted merchandise. (50 units x $15) = $750.
May		15:		Accounts payable paid for May 5 purchase less R&A. ($7,500 – $750 – $350) = $6,400.
May		15:		Merchandise inventory paid for May 5 purchase less R&A. ($7,000 – $750 – $350) x 2% = $128.