Prepare journal entries for the following merchandising transactions of Powell Company assuming it uses a perpetual inventory system and the gross method. May 1 -Powell purchased merchandise with a price of $$ \$ 935 $$ and credit terms of n/30. May 12 Powell returned merchandise that had a price of $$ \$ 155 $$. May 31 Powell paid the amount due from the May 1 purchase, minus the May 12 return. June 3 Powell sold merchandise for $$ \$ 480 $$, with credit terms $$ n / 15 $$. Cost of the merchandise is $$ \$ 330 $$. June 5 The customer discovers some of the units are scratched. Powell gives a price reduction (allowance) and credits the customer's accounts receivable for $$ \$ 32 $$ to compensate for the scratches. June 18 Powell received payment for the amount due from the June 3 sale less the June 5 allowance.

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**May 1**  
Purchase of merchandise at a price of $$ \$935 $$.  
$$
\begin{array}{rcl}
\text{Debit: Inventory} & \quad 935 \quad & \text{(Increase inventory)} \
\text{Credit: Accounts Payable} & \quad 935 \quad & \text{(Record liability)}
\end{array}
$$

**May 12**  
Return of merchandise originally purchased for $$ \$155 $$.  
$$
\begin{array}{rcl}
\text{Debit: Accounts Payable} & \quad 155 \quad & \text{(Reduce liability)} \
\text{Credit: Inventory} & \quad 155 \quad & \text{(Reduce inventory)}
\end{array}
$$

**May 31**  
Payment for the merchandise purchase net of the return.  
The net amount due is:  
$$
935 - 155 = 780
$$
$$
\begin{array}{rcl}
\text{Debit: Accounts Payable} & \quad 780 \quad & \text{(Erase liability)} \
\text{Credit: Cash} & \quad 780 \quad & \text{(Payment made)}
\end{array}
$$

**June 3**  
Sale of merchandise for $$ \$480 $$ on credit with terms $$ n/15 $$ and the cost of the merchandise is $$ \$330 $$.

*Record the sale:*
$$
\begin{array}{rcl}
\text{Debit: Accounts Receivable} & \quad 480 \quad & \text{(Recognize receivable)} \
\text{Credit: Sales Revenue} & \quad 480 \quad & \text{(Record sale)}
\end{array}
$$

*Record the cost of goods sold:*
$$
\begin{array}{rcl}
\text{Debit: Cost of Goods Sold} & \quad 330 \quad & \text{(Recognize expense)} \
\text{Credit: Inventory} & \quad 330 \quad & \text{(Reduce inventory)}
\end{array}
$$

**June 5**  
Customer is granted a price reduction allowance of $$ \$32 $$ for scratched merchandise.  
$$
\begin{array}{rcl}
\text{Debit: Sales Returns and Allowances} & \quad 32 \quad & \text{(Reduce revenue)} \
\text{Credit: Accounts Receivable} & \quad 32 \quad & \text{(Reduce receivable)}
\end{array}
$$

**June 18**  
Receipt of payment from the customer for the sale (after reducing the allowance).  
The net amount received is:  
$$
480 - 32 = 448
$$
$$
\begin{array}{rcl}
\text{Debit: Cash} & \quad 448 \quad & \text{(Increase cash)} \
\text{Credit: Accounts Receivable} & \quad 448 \quad & \text{(Reduce receivable)}
\end{array}
$$
**Journal Entries for Powell Company:** 1. **May 1** - **Debit:** Inventory $$ \$935 $$ - **Credit:** Accounts Payable $$ \$935 $$ 2. **May 12** - **Debit:** Accounts Payable $$ \$155 $$ - **Credit:** Inventory $$ \$155 $$ 3. **May 31** - **Debit:** Accounts Payable $$ \$780 $$ - **Credit:** Cash $$ \$780 $$ 4. **June 3** - **Debit:** Accounts Receivable $$ \$480 $$ - **Credit:** Sales Revenue $$ \$480 $$ - **Debit:** Cost of Goods Sold $$ \$330 $$ - **Credit:** Inventory $$ \$330 $$ 5. **June 5** - **Debit:** Sales Returns and Allowances $$ \$32 $$ - **Credit:** Accounts Receivable $$ \$32 $$ 6. **June 18** - **Debit:** Cash $$ \$448 $$ - **Credit:** Accounts Receivable $$ \$448 $$

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