Problem 1:
Allied Parts was organized on May 1, 2015, and made its first purchase of merchandise On
May 3. The purchase was for 2,000 units at a price of $10 per unit. On May 5, Allied Parts
sold 1,500 of the units for $14 per unit to Baker Co. Terms of the sale were 2y10, ny60.
Prepare entries for Allied Parts to record the May 5 sale and each of the following separate
transactions a through c using a perpetual inventory system.
a. On May 7, Baker returns 200 units because they did not fit the customer’s needs. Allied Parts
restores the units to its inventory.
b. On May 8, Baker discovers that 300 units are damaged but are still of some use and, therefore,
keeps the units. Allied Parts sends Baker a credit memorandum for $600 to compensate for the
damage.
c. On May 15, Baker discovers that 100 units are the wrong color. Baker keeps 60 of these units
because Allied Parts sends a $120 credit memorandum to compensate. Baker returns the
remaining 40 units to Allied Parts. Allied Parts restores the 40 returned units to its inventory.
May 3: Merchandising Inventory 20,000(2000x 10)
Cash. 20,000(2000x10)
Explanation:
May 5: Sold merchandise on credit (1,500 × $14) = $21,000
May 5: To record cost of sale (1,500 × $10) = $15,000
May 7: Accepted a return from a customer (200 × $14) = $2,800
May 7: Returned merchandise to inventory (200 × $10) = $2,000
May 15: Accepted a return from a customer [$120 + (40 × $14)] = $680
May 15: Returned merchandise to inventory (40 × $10) = $400
Problem 2:
July 1 Purchased merchandise from Boden Company for $6,000 under credit terms of 1/15, n/30,
FOB shipping point, invoice dated July 1.
2 Sold merchandise to Creek Co. for $900 under credit terms of 2/10, n/60, FOB shipping point,
invoice dated July 2. The merchandise had cost $500.
3 Paid $125 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 leigh Co. for $2,200 under credit terms of 2/15, n/60, FOB
destination, invoice dated July 9.
11 Received a $200 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 $800 to Art Co. for $1,200 under credit terms of 2/15, n/60, FOB
shipping point, invoice dated July 19.
21 Issued a $200 credit memorandum to Art Co. for an allowance on goods sold on July 19.
24 Paid Leigh Co. the balance due after deducting the 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 $7,000 under credit terms of 2/10, n/60,
FOB shipping point, invoice dated July 31.
Explanation:
July 12 Sales Discounts (2%) = $18
16 Merchandise inventory (1%) = $60
24 Merchandise Inventory (2% × $2,000) = $40
30 Sales Discounts [($1,200 – $200) × 0.02] = $20
Problem 3:
On May 11, Vegas Co. accepts delivery of $40,000 of merchandise it purchases for resale from
Troy Corporation. With the merchandise is an invoice dated May 11, with terms of 3y10, ny90,
FOB shipping point. The goods cost Troy $30,000. When the goods are delivered, Vegas pays
$345 to Express Shipping for delivery charges on the merchandise. On May 12, Vegas returns
$1,400 of goods to Troy, who receives them one day later and restores them to inventory. The
returned goods had cost Troy $800. On May 20, Vegas mails a check to Troy Corporation for the
amount owed. Troy receives it the following day. (Both Sydney and Troy use a perpetual
inventory system.)
1. Prepare journal entries that Vegas Co. records for these transactions.
2. Prepare journal entries that Troy Corporation records for these transactions.
1) Journal entry for Vegas Co. Buyer
Date account and explanation Debit Credit
May 11 Merchandise inventory 40000
Account payable 40000
Merchandise inventory 345
Cash 345
May 12 Account payable 1400
Merchandise inventory 1400
May 20 Account payable (40000-1400) 38600
cash (38600*97%) 37442
Merchandise inventory 1158
2) Journal entry Troy Corporation (Seller)
Date account and explanation Debit Credit
May 11 Account receivable 40000
Sales revenue 40000
Cost of goods sold 30000
Merchandise inventory 30000
May 12 Sales return and allowance 1400
Account receivable 1400
Merchandise inventory 800
Cost of goods sold 800
May 20 Cash (38600*97%) 37442
Sales discount 1158
Account receivable 38600
