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

Required:
a. Prepare journal entries that Sydney Retailing (buyer) records for these three transactions.
b. Prepare journal entries that Troy Wholesalers (seller) records for these three transactions.

1. Sydney Buyer

11 Dr Accounts Payable $40,000

Cr Merchandise Inventory $40,000

11 Dr Merchandise Inventory $345

Cr Cash $345

12 Dr Merchandise Inventory $1,400

Cr Accounts Payable $1,400

20 Dr Accounts Payable $38,600

Cr Merchandise Inventory $1,158

Cr Cash $37,442

2. Troy - Seller

11 Dr Accounts Receivables $40,000

Cr Sales $40,000

Dr Cost of Goods Sold $30,000

Cr Merchandise Inventory $30,000

13 Dr Sales Returns and Allowances $1,400

Cr Accounts Receivables $1,400

Dr Cost of Good Sold $1,050

Cr Merchandise Inventory $1,050

21 Dr Cash $37,442

Dr Sales Discount $1,158

Cr Accounts Receivables $38,600

Explanation:

1. Preparation of journal entries that Sydney Co. records for these transactions.

1. SYDNEY BUYER

11 Dr Accounts Payable $40,000

Cr Merchandise Inventory $40,000

11 Dr Merchandise Inventory $345

Cr Cash $345

12 Dr Merchandise Inventory $1,400

Cr Accounts Payable $1,400

20 Dr Accounts Payable $38,600

($40,000-$1,400)

Cr Merchandise Inventory $1,158

($38,600-$37,442)

Cr Cash $37,442

[$38,800- [($1,400 × (100% – 3%)]

2. Preparation of the journal entries that Troy Corporation records for these transactions.

TROY - SELLER

11 Dr Accounts Receivables $40,000

Cr Sales $40,000

Dr Cost of Goods Sold $30,000

Cr Merchandise Inventory $30,000

13 Dr Sales Returns and Allowances $1,400

Cr Accounts Receivables $1,400

Dr Cost of Good Sold $1,050

Cr Merchandise Inventory $1,050

21 Dr Cash $37,442

[$38,800- [($1,400 × (100% – 3%)]

Dr Sales Discount $1,158

($38,600-$37,442)

Cr Accounts Receivables $38,600

($40,000-$1,400)

Workings:

May 11 Purchased goods=($40,000 × [100% – 3%])

May 11 Purchased goods= $38,800

May 12 Returned goods= ($1,400 × [100% – 3%]) May 12 Returned goods= $1,358

May 20 Paid balance within the discount period= ($38,800 – $1,358)

May 20 Paid balance within the discount period= $37,442

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