Recording sales, purchases, shipping, and returns-buyer and seller. 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.

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

 please see explanation column for answers

Explanation:

                 A) Journal entry for Sydney retailing buyer

i)To record purchase of inventory on account

Date          Account  titles                                   Debit               Credit

May 11          Accounts Payable                        $40,000

Merchandise Inventory                                                             $40,000

ii)To record shipping expense paid

Date          Account  titles                                   Debit               Credit

May 11        

Merchandise Inventory                       $ 345

                       Cash                                                                          $ 345

iii) To record goods returned to seller

Date          Account  titles                                   Debit               Credit

May 12   Accounts Payable                                $1,400

         Merchandise Inventory                                                       $1,400

iv To record payment on account.

Date          Account  titles                                   Debit               Credit

May 20 Accounts Payable                            $38,600

Merchandise Inventory                                                               $1,158

Cash                                                                                              $37,442

Calculation:

Accounts payable=  Purchases−   Purchase return

=$40,000−$1,400

=$38,600

Discount=Accounts payable X 3%

=$38,600×0.03

=$1,158

                           B) Journal entry for Troy - Seller

i)To record sales of goods on account

Date          Account  titles                                   Debit               Credit

May 11          Accounts receivable                        $40,000

Sales Revenue                                                            $40,000

ii) To record cost of goods sold

Date          Account  titles                                   Debit               Credit

May 11   Cost of goods sold                               $30,000

Merchandise Inventory                                                              $30,000

III) To record sales return

Date          Account  titles                                   Debit               Credit

May 12   Sales returns and allowance                $1,400

  Account receivable                                                                       $1,400  

iv) To record cost of goods sold reversed for sales return  

 Date          Account  titles                                   Debit               Credit

May 12           Merchandise Inventory                    $1,050.  

       Cost of goods sold                                                                 $1,050.    

v) To record cash received for goods sold.

  Date          Account  titles                                   Debit               Credit

May 20      Cash                            $38,600

Sales discount                                                               $1,158

        Account receivables                                                                  $37,442

Calculation:

Accounts receivables=  sales−   sales  return

=$40,000−$1,400

=$38,600

Discount=receivables X 3%

=$38,600×0.03

=$1,158

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