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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 $9 cash per unit (for a total cost of $9,000). 5 Allied sold 500 of the units in inventory for $13 per unit (invoice total: $6,500) to Macy Co. under credit terms 2/10, n/60. The goods cost $4,500 to Allied. 7 Macy returns 50 units because they did not fit the customer’s needs (invoice amount: $650). Allied restores the units, which cost $450, 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 $250 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.
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 $9 cash per unit (for a total cost of $9,000). 5 Allied sold 500 of the units in inventory for $13 per unit (invoice total: $6,500) to Macy Co. under credit terms 2/10, n/60. The goods cost $4,500 to Allied. 7 Macy returns 50 units because they did not fit the customer’s needs (invoice amount: $650). Allied restores the units, which cost $450, 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 $250 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.
Final answer:To record Macy Co.'s transactions with Allied Merchandisers, journal entries are created for each event: the initial purchase, return of goods, receiving an allowance for damaged goods, and the final payment with discounts applied.Explanation:To record the transactions for Macy Co. regarding the dealings with Allied Merchandisers, we'll prepare the journal entries assuming that Macy Co. uses the gross method for recording purchase discounts and maintains a perpetual inventory system.May 5 Purchase:Macy would record the inventory purchase on credit as:Dr. Inventory $6,500Cr. Accounts Payable $6,500May 7 Return:Upon return of the units:Dr. Accounts Payable $650Cr. Inventory $650May 8 Allowance:For the scuffed units kept at a reduced price:Dr. Accounts Payable $250Cr. Inventory $250May 15 Payment:For the payment made within the discount period, first calculate the payment after returns and allowances:$6,500 (original invoice) - $650 (returns) - $250 (allowances) = $5,600.Next, apply the 2% discount:$5,600 * 2% = $112.So, payment is $5,600 - $112 = $5,488.Dr. Accounts Payable $5,600Cr. Cash $5,488Cr. Purchase Discounts $112This set of journal entries would chronologically record the suite of transactions between Allied and Macy Co. from the perspective of Macy Co....