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.

Required:
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.)

Perpetual Inventory System

Gross Method

Date                 Particulars                        Debit              Credit

3 May             Merchandise Inventory   10,000

                               Cash                                               10,000

May 3 for 1,000 units at a price of $10 cash per unit (for a total cost of $10,000).

5 May               Accounts Receivable Macy  7000

                                             Sales                                    7000

May 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.

5 May             Cost of Goods Sold               5000

                           Merchandise Inventory                        5000    

May 7:               Sales   Returns              700

                            Accounts Receivable Macy  700

May 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.

May 7               Merchandise Inventory       500    

                                         Cost of Goods Sold               500

May 8           Sales  Returns & Allowance             300

                              Accounts Receivable Macy           300

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.

May 15:              Cash                    6000

                          Sales Discounts     120

                             Accounts Receivable Macy           5880    

Payment : $ 7000- $ 700 - $ 300= $ 6000

Discount : 2% of 6000= $ 120

May 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.

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