[The following information applies to the questions displayed 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 $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, n/60. 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.

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 Merchandisers

                                        Journal Entries

Date           General Journal                         Debit        Credit

03-May   Merchandise Inventory               $20,000

                     To Cash                                                     $20,000

05-May    Accounts Receivable                 $21,000

                      To Sales                                                    $21,000

05-May     Cost of goods sold                     $15,000

                     To Merchandise Inventory                        $15,000

07-May      Sales Returns and allowances   $1,750  

                      To Accounts Receivable                           $1,750

07-May      Merchandise Inventory               $1,250

                      To Cost of goods sold                                $1,250

08-May      Sales Returns and allowances    $300

                       To Accounts Receivable                            $300

15-May        Cash                                             $18,571

                   Sales Discounts                           $379

                    ($18950*2%)

                         To Accounts receivable                           $18,950

                          ($21000-$1750-$300)

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