Chapter 5, Problem 4E

Exercise 5-4
Recording sales, sales returns, and sales allowances
P2
Allied Merchandisers was organized on May 1. Macy Co. is a major customer (buyer) of Allied (seller) products. 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.)

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 $10 cash per unit (for a total cost of $20,000).

5 Allied sold 1,500 of the units in inventory for $14 per unit (invoice total:
$21,000) to Macy Co. under credit terms 2/10, ff60. The goods cost Allied $15,000.

7 Macy returns 125 units because they did not fit the customer’s needs (invoice amount: $1,750). Allied restores the units, which cost $1,250, to its inventory.

8 Macy discovers that 200 units are scuffed but are still of use and, therefore, keeps the units. Allied sends Macy a credit memorandum for $300 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.