At the beginning of the current golf season, on April 1, 2017, Swing-Town Golf Shop's merchandise inventory included 20 specialty hybrid golf clubs at a cost of $160 each. Swing-Town uses a perpetual inventory system. The following transactions occurred in April:
Apr 2. Purchased 100 additional clubs from Weir Inc. for $16,000, terms n/30.
4 Received credit from Weir for five returned damaged clubs purchased on April 2.
5 Sold 20 clubs to Big Golf Practice Range for $265 each, terms n/30.
6 Big Golf Practice Range returned eight of the clubs after determining it had purchased more clubs than it needed. Swing-Town gave Big Golf Practice Range a credit on its account and returned the clubs to inventory.
10 Sold 30 clubs at $265 each to cash customers.
12 Ten of these clubs were returned for cash. The customers claimed they never play golf and had no idea how they had been talked into purchasing the clubs. Refunded cash to these customers and returned the clubs to inventory.
17 An additional 10 of the clubs sold on April 10 were returned because the clubs were damaged. The customers were refunded cash and the clubs were sent to a local recycler.
25 Sold 45 clubs to Pro-Shop for $265 each, terms n/30.
29 Pro-Shop returned 25 of the clubs after the golf pro had examined them and determined that these clubs were of inferior quality. Swing-Town gave Pro-Shop a credit and decided to return the clubs to inventory with plans to sell them for the reduced price of $185 each.
Instructions
(a) Record the transactions for the month of April for Swing-Town Golf.
(b) Create T accounts for Sales, Sales Returns and Allowances, Cost of Goods Sold, and Merchandise Inventory. Post the opening balance and April's transactions, and calculate the April 30 balances.
Taking It Further
Swing-Town's owner thinks that it is a waste of time and effort for the bookkeeper to use a Sales Returns and Allowances account and thinks that the bookkeeper should just reduce the Sales account for any sales returns or allowances. Explain to Swing-Town's owner how he would benefit from using a Sales Returns and Allowances account.