Required information [The following information applies to the questions displayed below] Sydney Retailtng (buyer) and Troy Wholesalers (setler) enter into the following transactions. May 11 Sydney becepts delivery of $$ \$ 40,000 $$ of merchandise it purchases for resale from froy: invoice dated May 11 , terms $$ 3 / 10, n / 90 $$, FOB shipping point. The goods cost Troy $$ \$ 30,000 $$. Sydney pays $$ \$ 399 $$ cash to Express Shipping for delivery charges on the merchandtse. May 12 Sydney returns $$ \$ 1,900 $$ of the $$ \$ 40,000 $$ of goods to Troy, who receives them the same day and restores them to its Inventory. The returned goods had cost troy $$ \$ 1,425 $$. May 20 Sydney pays Troy for the amount owed. Troy receives the cash imediately. (Both Sydney and Troy use a perpetual imventory system and the net method) 1. Prepare journal entries that Sydney Retailing (buyer) records for these three transactions Vew transection list

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**May 11 – Purchase and Freight Charges**  
1. **Record the Merchandise Purchase Using the Net Method:**  
   - The invoice is for $$ \$40,\!000 $$ and the terms are $$ 3/10, \, n/90 $$.  
   - Under the net method, the purchase is recorded net of the discount. The discount is  
     $$
     \$40,\!000 \times 0.03 = \$1,\!200.
     $$
   - The net cost of the merchandise is  
     $$
     \$40,\!000 - \$1,\!200 = \$38,\!800.
     $$
   - Journal entry:  
     $$
     \begin{array}{rl}
     \text{Debit: Merchandise Inventory} & \quad \$38,\!800 \
     \text{Credit: Accounts Payable} & \quad \$38,\!800
     \end{array}
     $$

2. **Record the Freight Charges:**  
   - Since the shipping is FOB shipping point, Sydney is responsible for freight. The cash paid is  
     $$
     \$399.
     $$
   - Under a perpetual inventory system, freight charges that relate to acquiring inventory are added to inventory cost.  
   - Journal entry:  
     $$
     \begin{array}{rl}
     \text{Debit: Merchandise Inventory} & \quad \$399 \
     \text{Credit: Cash} & \quad \$399
     \end{array}
     $$

---

**May 12 – Return of Merchandise**  
- Sydney returns merchandise with an invoice amount of $$ \$1,\!900 $$. Under the net method, the return should be recorded at the net cost (i.e., considering the discount).  
- Calculate the net amount of the return:  
  $$
  \$1,\!900 \times (1 - 0.03) = \$1,\!900 \times 0.97 = \$1,\!843.
  $$
- Journal entry to record the return:  
  $$
  \begin{array}{rl}
  \text{Debit: Accounts Payable} & \quad \$1,\!843 \
  \text{Credit: Merchandise Inventory} & \quad \$1,\!843
  \end{array}
  $$

---

**May 20 – Payment to Troy Wholesalers**  
- After the return, the balance in Accounts Payable is reduced. The original payable was $$ \$38,\!800 $$ and the reduction due to returns is $$ \$1,\!843 $$.  
- The remaining payable balance is:  
  $$
  \$38,\!800 - \$1,\!843 = \$36,\!957.
  $$
- When Sydney pays Troy, the journal entry is:  
  $$
  \begin{array}{rl}
  \text{Debit: Accounts Payable} & \quad \$36,\!957 \
  \text{Credit: Cash} & \quad \$36,\!957
  \end{array}
  $$

---

**Summary of Journal Entries for Sydney Retailing:**

1. **May 11:**  
   $$
   \begin{array}{rl}
   \text{Merchandise Inventory} & \quad \$38,\!800 \
   \quad\quad\ \ \ \text{Accounts Payable} & \quad \$38,\!800 
   \end{array}
   $$
   $$
   \begin{array}{rl}
   \text{Merchandise Inventory} & \quad \$399 \
   \quad\quad\ \ \ \text{Cash} & \quad \$399 
   \end{array}
   $$

2. **May 12:**  
   $$
   \begin{array}{rl}
   \text{Accounts Payable} & \quad \$1,\!843 \
   \quad\quad\ \ \ \text{Merchandise Inventory} & \quad \$1,\!843 
   \end{array}
   $$

3. **May 20:**  
   $$
   \begin{array}{rl}
   \text{Accounts Payable} & \quad \$36,\!957 \
   \quad\quad\ \ \ \text{Cash} & \quad \$36,\!957 
   \end{array}
   $$
**Journal Entries for Sydney Retailing:** 1. **May 11:** - **Purchase and Freight Charges** - Debit: Merchandise Inventory \$38,800 - Credit: Accounts Payable \$38,800 - Debit: Merchandise Inventory \$399 - Credit: Cash \$399 2. **May 12:** - **Return of Merchandise** - Debit: Accounts Payable \$1,843 - Credit: Merchandise Inventory \$1,843 3. **May 20:** - **Payment to Troy Wholesalers** - Debit: Accounts Payable \$36,957 - Credit: Cash \$36,957

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