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 2,000 units at a price of $8 cash per unit (for a total cost of $16,000). 5 Allied sold 1,000 of the units in inventory for $12 per unit (invoice total: $12,000) to Macy Co. under credit terms 2/10, n/60. The goods cost Allied $8,000. 7 Macy returns 100 units because they did not fit the customer’s needs (invoice amount: $1,200). Allied restores the units, which cost $800, 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 $400 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.

Answer 1

Journal entry in books of  Allied:

Date	Account Name	Debit	Credit
May 3	Merchandise inventory	$16000
	Cash		$16000
	(To record purchase of inventory for cash)
May 5	Accounts receivable	12000
	Sales revenue		12000
	(To record sale on account)
	Cost of goods sold	8000
	Merchandise inventory		8000
	(To record COGS)
May 7	Sales returns and allowances	1200
	Accounts receivable		1200
	(To record the sales return)
	Inventory	800
	Cost of goods sold		800
	(To record return of goods sold)
May 8	Sales returns and allowances	400
	Accounts receivable		400
	(To record issue of credit memorandum)
May 15	Cash	10192
	Sales returns and allowances (12000 - 1200 -400) * 2%	208
	Accounts receivable (12000 - 1200 -400)		10400
	(To record payment received for goods sold)

Journal in books of Macy:

May 03	No journal entry required
May 05	Merchandise inventory	12000
	Accounts Payable		12000
	(To record purchases)
May 07	Accounts Payable	1200
	Merchandise inventory		1200
	(To record purchases return)
May 08	Accounts Payable	400
	Merchandise inventory		400
	(To record issue of credit memo)
May 15	Accounts Payable	10400
	Merchandise inventory		208
	Cash		10192