Allied Parts was organized on May 1, 2013, and made its first purchase of mercha

Question

Allied Parts was organized on May 1, 2013, and made its first purchase of merchandise on May 3. The purchase was for 2,000 units at a pries of $10 per units. On May 5, Allied Parts sold 1,500 of the units for $14 per unit to Baker Co. Terms of the sale were 2/10, n/60. 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. On May 7, Baker returns 200 units because they did not fit the customer's needs. Allied Parts restores the units to its inventory. On May 8, Baker discovers that 300 units ate 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. On May 15 Baker discovers that 100 units are the wrong color. Baker keeps 60 of these units because Allied Parts sends a $120 credits memorandum to compensate. Baker returns the remaining 40 units to Allied Parts. Allied Parts restores the 40 returned units to its inventory.

Explanation / Answer

Journal entries in the book of Allied parts,

1.

    on May 5th    ACCOUNT RECEIVABLE a/c ,(DR)     $21,000                     (1500*14)
                                             TO, SALES a/c(CR)     $21,000

         May 5      COST OF GOODS SOLD a/c (DR) $15,000                      (1500*10)
                           TO MERCHANDISE INVENTORY a/c(CR) $15,000

(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.

Journal will be
                  May 7   SALES RETURNS a/c (DR)     $ 2,800                        (200*14)
                                       TO ACCOUNTS RECEIVABLE a/c $2,800

                 May 7    MERCHANDISE INVENTORY a/c(DR)    $2,000                (200*10)
                                         TO   COST OF GOODS SOLD a/c $2,000

(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.

Journal will be
                      May 8   SALES RETURNS a/c (DR) $600
                                        TO    ACCOUNTS RECEIVABLE a/c (CR) $600

(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. However, Baker returns the remaining 40 units to Allied parts . Allied parts restores the 40 returned units to its inventory.

Journal will be
                         May 15    SALES RETURNS a/c (DR)   $680                                    ((40*14)+120)
                                                TO ACCOUNTS RECEIVABLE a/c (CR) $680
              

                         May 15 MERCHANDISE INVENTORY a/c (DR) $ 400                      (40*10)
                                                 TO COST OF GOODS SOLD a/c (CR) $400

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