4
Required information
[The following information applies to the questions displayed below.]
28
points
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 3,000 units at a price of $8 cash per unit
(for a total cost of $24,000).
May 5 Allied sold 1,500 of the units in inventory for $12 per unit (invoice total: $18,000) to Macy Company under credit terms
2/10, n/60. The goods cost Allied $12,000.
May 7 Macy returns 150 units because they did not fit the customer's needs (invoice amount: $1.800). Allied restores the units.
May 8 Macy discovers that 150 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 $600 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.
Use the above informations, analyze each transaction by indicating its effects on the income statement-specifically, identify the
accounts and amounts (including + or -) for each transaction.
May 3
May 5
May 7
May 8
May 15
Income Statement Components
Increase/Decrease Amount
Increase/Decrease Amount
Increase/Decrease Amount
Increase/Decrease Amount
Increase/Decrease Amount
Sales
Sales discounts
Sales returns and allowances
Net sales
Cost of goods sold
Gross profit
