Required information [The following information applies to the questions displayed below.] Allied Merchandisers was organized on May 1. Macy Company 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 $$ \$ 11 $$ cash per unit (for a total cost of $$ \$ 22,909 $$ ). May 5 Allied sold 1,900 of the units in inventory for $$ \$ 15 $$ per unit (invoice total: $$ \$ 15 $$, 000 ) to Macy Company under credit terms $$ 2 / 10, n / 60 $$. The goods cost Allied $$ \$ 11,090 $$. May 7 Macy returns 100 units because they did not fit the customer's needs (invoice amount: $$ \$ 1,500 $$ ). Allied restores the units, which cost $$ \$ 1,100 $$, to its inventory. May 8 Macy discovers that 100 units are scuffed but are still of use and, therefore, keeps the units. Allied gives a price reduction (allowance) and credits Macy's accounts receivable for $$ \$ 799 $$ to compensate for the damage. May 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.

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**May 3 – Purchase of Inventory**  
1. Record the purchase of 2,000 units for a total cost of  
   $$
   \$22{,}909
   $$
   $$
   \begin{aligned}
   \text{Dr Inventory} & \quad \$22{,}909 \
   \text{Cr Cash}    & \quad \$22{,}909 \
   \end{aligned}
   $$

**May 5 – Sale of Inventory**  
Allied sold 1,900 units at a sales price of \$15 per unit (invoice total \$15,000) and the goods cost Allied  
$$
\$11{,}090.
$$

1. Record the sale on account under terms $$2/10,\, n/60$$:
   $$
   \begin{aligned}
   \text{Dr Accounts Receivable} & \quad \$15{,}000 \
   \text{Cr Sales Revenue}        & \quad \$15{,}000 \
   \end{aligned}
   $$

2. Record the cost of goods sold:
   $$
   \begin{aligned}
   \text{Dr Cost of Goods Sold} & \quad \$11{,}090 \
   \text{Cr Inventory}          & \quad \$11{,}090 \
   \end{aligned}
   $$

**May 7 – Return of Inventory**  
Macy returns 100 units. The return has an invoice amount of  
$$
\$1{,}500
$$
and the cost of these goods is  
$$
\$1{,}100.
$$

1. Record the sales return:
   $$
   \begin{aligned}
   \text{Dr Sales Returns and Allowances} & \quad \$1{,}500 \
   \text{Cr Accounts Receivable}          & \quad \$1{,}500 \
   \end{aligned}
   $$

2. Reinstate the returned goods to inventory:
   $$
   \begin{aligned}
   \text{Dr Inventory}          & \quad \$1{,}100 \
   \text{Cr Cost of Goods Sold} & \quad \$1{,}100 \
   \end{aligned}
   $$

**May 8 – Allowance for Damaged Goods**  
Macy keeps 100 units that are scuffed, and Allied grants an allowance with a reduction of  
$$
\$799
$$
by crediting Macy’s accounts receivable.

1. Record the allowance:
   $$
   \begin{aligned}
   \text{Dr Sales Returns and Allowances} & \quad \$799 \
   \text{Cr Accounts Receivable}          & \quad \$799 \
   \end{aligned}
   $$

**May 15 – Receipt of Payment**  
Macy pays for the May 5 sale, net of returns, allowances and any cash discount.

1. Determine the net receivable balance at the time of payment:

$$
   \begin{aligned}
   \text{Original Invoice} & = \$15{,}000 \
   \text{Less Returns}     & = \$1{,}500 \
   \text{Less Allowance}   & = \$799 \
   \text{Net Invoice}      & = \$15{,}000 - \$1{,}500 - \$799 = \$12{,}701 \
   \end{aligned}
   $$
   
2. Calculate the cash discount (2\% of the net invoice):

$$
   \text{Discount} = 0.02 \times \$12{,}701 = \$254.02
   $$

3. Determine the cash received:

$$
   \text{Cash Received} = \$12{,}701 - \$254.02 = \$12{,}446.98
   $$

4. Record the receipt of payment:
   $$
   \begin{aligned}
   \text{Dr Cash}           & \quad \$12{,}446.98 \
   \text{Dr Sales Discounts} & \quad \$254.02 \
   \text{Cr Accounts Receivable} & \quad \$12{,}701 \
   \end{aligned}
   $$
**Financial Transactions for Allied Merchandisers:** 1. **May 3 – Purchase of Inventory** - **Debit:** Inventory \$22,909 - **Credit:** Cash \$22,909 2. **May 5 – Sale to Macy Company** - **Debit:** Accounts Receivable \$15,000 - **Credit:** Sales Revenue \$15,000 - **Debit:** Cost of Goods Sold \$11,090 - **Credit:** Inventory \$11,090 3. **May 7 – Return of 100 Units** - **Debit:** Sales Returns and Allowances \$1,500 - **Credit:** Accounts Receivable \$1,500 - **Debit:** Inventory \$1,100 - **Credit:** Cost of Goods Sold \$1,100 4. **May 8 – Allowance for Damaged Goods** - **Debit:** Sales Returns and Allowances \$799 - **Credit:** Accounts Receivable \$799 5. **May 15 – Receipt of Payment** - **Net Invoice after Returns and Allowance:** \$12,701 - **Cash Discount:** \$254.02 - **Cash Received:** \$12,446.98 - **Debit:** Cash \$12,446.98 - **Debit:** Sales Discounts \$254.02 - **Credit:** Accounts Receivable \$12,701

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