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Allied Merchandisers was organized on May 1. Macy Co. is a major customer (buyer) of Allied (seller) products.

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 $10 cash per unit (for a total cost of $20,000).     5   Allied sold 1,000 of the units in inventory for $14 per unit (invoice total: $14,000) to Macy Co. under credit terms 2/10, n/60. The goods cost Allied $10,000.     7   Macy returns 100 units because they did not fit the customer's needs (invoice amount: $1,400). Allied restores the units, which cost $1,000, 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 $600 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.)


  • 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).

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