Question

Sydney Retailing (buyer) and Troy Wholesalers (seller) enter into the following transactions. Both Sydney and Troy use a perpetual inventory system and the gross method.

May 11 Sydney accepts delivery of \(40,000 of merchandise it purchases for resale from Troy: invoice dated May 11; terms 3∕10, n∕90; FOB shipping point. The goods cost Troy \)30,000. Sydney pays \(345 cash to Express Shipping for delivery charges on the merchandise.

12 Sydney returns \)1,400 of the \(40,000 of goods to Troy, who receives them the same day and restores them to its inventory. The returned goods had cost Troy \)1,050.

20 Sydney pays Troy for the amount owed. Troy receives the cash immediately.

1. Prepare journal entries that Sydney Retailing (buyer) records for these three transactions.

2. Prepare journal entries that Troy Wholesalers (seller) records for these three transactions.

Short answer

Answer

1. Both debit and credit sides of the journal amount to$80,345 each.
2. Both debit and credit sides of the journal amount to$111,050 each.

Step-by-step solution

Step-by-Step SolutionStep 1: Definition of Discount

A discount is when the offered price of a product or service is reduced. It is reported as an expense by the seller and benefit by the buyer.

Journal entries for Sydney Retailing

Date	Accounts and Explanation	Debit $	Credit $
11 May	Merchandise inventory	$40,000
	Account payable		$40,000
	Merchandise inventory	345
	Cash		345
12 May	Accounts payable	1,400
	Merchandise inventory		1,400
20 May	Accounts payable	38,600
	Discount received		1,158
	Cash		37,442
		$80,345	$80,345

Journal entries for Troy Wholesalers

Date	Accounts and Explanation	Debit $	Credit $
11 May	Accounts receivable	$40,000
	Sales revenue		$40,000
	Cost of goods sold	30,000
	Merchandise inventory		30,000
12 May	Sales return and allowance	1,400
	Accounts receivable		1,400
	Merchandise inventory	1,050
	Cost of goods sold		1,050
20 May	Cash	37,442
	Discount allowed	1,158
	Accounts receivable		38,600
		$111,050	$111,050