ACG2021-Connect Ch.4

Required information

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 $10 cash per unit (for a total cost of $10,000).
		5		Allied sold 500 of the units in inventory for $14 per unit (invoice total: $7,000) to Macy Co. under credit terms 2/10, n/60. The goods cost Allied $5,000.
		7		Macy returns 50 units because they did not fit the customer’s needs (invoice amount: $700). Allied restores the units, which cost $500, 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 $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.

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.)

Explanation

May		3:		Purchased goods. (1,000 units x $10). = $10,000.
May		5:		Sold goods on credit. (500 units x $14). = $7,000.
May		5:		Record cost of sale. (500 units x $10). = $5,000.
May		7:		Accepted returns. (50 units x $14). = $700.
May		7:		Returned goods to inventory. (50 units x $10). = $500.
May		15:		Sales discount received payment within discount period. ($7,000 – $700 – $300) x 2% = $120.
May		15:		Accounts receivable balance as of May 15. ($7,000 – $700 – $300) = $6,000.

Required information

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 $10 cash per unit (for a total cost of $10,000).
		5		Allied sold 500 of the units in inventory for $14 per unit (invoice total: $7,000) to Macy Co. under credit terms 2/10, n/60. The goods cost Allied $5,000.
		7		Macy returns 50 units because they did not fit the customer’s needs (invoice amount: $700). Allied restores the units, which cost $500, 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 $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.

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.)
  

Explanation

May		7:		Returned unwanted merchandise. (50 units x $14) = $700.
May		15:		Accounts payable paid for May 5 purchase less R&A. ($7,000 – $700 – $300) = $6,000.
May		15:		Merchandise inventory paid for May 5 purchase less R&A. ($7,000 – $700 – $300) x 2% = $120.

The following list includes selected permanent accounts and all of the temporary accounts from the December 31, 2017, unadjusted trial balance of Emiko Co.. Emiko Co. uses a perpetual inventory system.
 

		Debit			Credit
Merchandise inventory	$	39,000
Prepaid selling expenses		7,400
Dividends		51,000
Sales				$	601,000
Sales returns and allowances		21,100
Sales discounts		6,800
Cost of goods sold		248,000
Sales salaries expense		66,000
Utilities expense		24,000
Selling expenses		45,000
Administrative expenses		123,000

Additional Information

Accrued sales salaries amount to $1,600. Prepaid selling expenses of $2,700 have expired. A physical count of year-end merchandise inventory shows $34,100 of goods still available.

(a) Use the above account balances along with the additional information, prepare the adjusting entries.
(b) Use the above account balances along with the additional information, prepare the closing entries.

No          Date      General Journal Debit     Credit

1              Dec 31   Sales      601,000                

1                              Income summary                             601,000

2              Dec 31   Income summary             543,100                

2                              Sales returns and allowances                      21,100

2                              Sales discounts                 6,800

2                              Cost of goods sold                            252,900

2                              Sales salaries expense                   67,600

2                              Utilities expense                              24,000

2                              Selling expenses                              47,700

2                              Administrative expenses                              123,000

3              Dec 31   Income summary             57,900  

3                              Retained Earnings                            57,900

4              Dec 31   Retained Earnings            51,000  

4                              Dividends                            51,000

Prepare journal entries to record the following merchandising transactions of Cabela’s, which uses the perpetual inventory system and the gross method. (Hint: It will help to identify each receivable and payable; for example, record the purchase on July 1 in Accounts Payable—Boden.)
 

July		1		Purchased merchandise from Boden Company for $6,000 under credit terms of 2/15, n/30, FOB shipping point, invoice dated July 1.
		2		Sold merchandise to Creek Co. for $950 under credit terms of 2/10, n/60, FOB shipping point, invoice dated July 2. The merchandise had cost $500.
		3		Paid $110 cash for freight charges on the purchase of July 1.
		8		Sold merchandise that had cost $1,300 for $1,700 cash.
		9		Purchased merchandise from Leight Co. for $2,700 under credit terms of 2/15, n/60, FOB destination, invoice dated July 9.
		11		Received a $700 credit memorandum from Leight Co. for the return of part of the merchandise purchased on July 9.
		12		Received the balance due from Creek Co. for the invoice dated July 2, net of the discount.
		16		Paid the balance due to Boden Company within the discount period.
		19		Sold merchandise that cost $1,000 to Art Co. for $1,500 under credit terms of 2/15, n/60, FOB shipping point, invoice dated July 19.
		21		Issued a $250 credit memorandum to Art Co. for an allowance on goods sold on July 19.
		24		Paid Leight Co. the balance due, net of discount.
		30		Received the balance due from Art Co. for the invoice dated July 19, net of discount.
		31		Sold merchandise that cost $4,800 to Creek Co. for $6,900 under credit terms of 2/10, n/60, FOB shipping point, invoice dated July 31.

  

No	Date	General Journal	Debit	Credit
1	July 01	Merchandise inventory	6,000
1		Accounts payable—Boden		6,000
2	July 02	Accounts receivable—Creek	950
2		Sales		950
3	July 02	Cost of goods sold	500
3		Merchandise inventory		500
4	July 03	Merchandise inventory	110
4		Cash		110
5	July 08	Cash	1,700
5		Sales		1,700
6	July 08	Cost of goods sold	1,300
6		Merchandise inventory		1,300
7	July 09	Merchandise inventory	2,700
7		Accounts payable—Leight		2,700
8	July 11	Accounts payable—Leight	700
8		Merchandise inventory		700
9	July 12	Cash	931
9		Sales discounts	19
9		Accounts receivable—Creek		950
10	July 16	Accounts payable—Boden	6,000
10		Merchandise inventory		120
10		Cash		5,880
11	July 19	Accounts receivable—Art	1,500
11		Sales		1,500
12	July 19	Cost of goods sold	1,000
12		Merchandise inventory		1,000
13	July 21	Sales returns and allowances	250
13		Accounts receivable—Art		250
14	July 24	Accounts payable—Leight	2,000
14		Merchandise inventory		40
14		Cash		1,960
15	July 30	Cash	1,225
15		Sales discounts	25
15		Accounts receivable—Art		1,250
16	July 31	Accounts receivable—Creek	6,900
16		Sales		6,900
17	July 31	Cost of goods sold	4,800
17		Merchandise inventory		4,800

Explanation

July		12		Sales Discounts ($950 × 2%) = $19
		16		Merchandise Inventory ($6,000 × 2%) = $120
		24		Merchandise Inventory ($2,000 × 2%) = $40
		30		Sales Discounts: ([$1,500 – $250] × 2%) = $25