Requiréd ihformátion The following information applies to the questions displaye

Question

Requiréd ihformátion The following information applies to the questions displayed below] The transactions listed below are typical of those involving Amalgamated Textiles and American Fashions. Amalgamated is a wholesale merchandiser and American Fashions is a retail merchandiser. Assume all sales of merchandise from Amalgamated to American Fashions are made with terms n/60, and the two companies use perpetual inventory systems. Assume the following transactions between the two companies occurred in the order isted during the year ended December 31. a. Amalgamated sold merchandise to American Fashions at a selling price of $280,000. The merchandise had cost Amalgamated $195,000. b. Two days later, American Fashions returned goods that had been sold to the company at a price of $29,500 and complained to Amalgamated that some of the remaining merchandise differed from what American Fashions had ordered. Amalgamated agreed to give an allowance of $4,500 to American Fashions. The goods returned by American Fashions had cost Amalgamated $20,270. c. Just three days later, American Fashions paid Amalgamated, which settled all amounts owed

Explanation / Answer

Effect on transaction Inventory Balance a + $ 280000 (Inventory will be accounted at a cost to American fashions) b - $29500 ( Inventory will be reduce by the amount of return .but Allowance will not affect inventory value) c NE (It does not affect inventory) Journal Entry Transaction General Ledger Debit Credit a Inventory                                     Dr $ 280000           To Amalgated Textiles $ 280000 (Being Inventory purchased from Amalgated textiles on credit) b Amalgated textiles                     Dr 34000                     To inventory 29500 `                     To Allowance- defective product 4500 Being goods returned at cost and allowance recorded for different product received c Amalgated textiles                     Dr 246000 (280000-34000)                   To bank 246000 (Being payment made to Amalgated textiles) Note: Please see that " Allowance-defective product" is a ledger name. It can vary according to the chart maintained by firm. Pl change accordingly.

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