Refer to Exercise and prepare the appropriate journal entries for Radica Co. to record the May 5 purchase and each of the three separate transactions a through c. Radica is a retailer that uses a perpetual inventory system and purchases these units for resale.
In Exercise, Mechanic Parts was organized on May 1, 2011, and made its first purchase of merchandise on May 3. The purchase was for 1,200 units at a price of $7 per unit. On May 5, Mechanic Parts sold 720 of the units for $11 per unit to Radica Co. Terms of the sale were 2/10, n/60. Prepare entries for Mechanic Parts to record the May 5 sale and each of the following separate transactions a through c using a perpetual inventory system.
a. On May 7, Radica returns 251 units because they did not fit the customer’s needs. Mechanic Parts restores the units to its inventory.
b. On May 8, Radica discovers that 60 units are damaged but are still of some use and, therefore, keeps the units. Mechanic Parts sends Radica a credit memorandum for $180 to compensate for the damage.
c. On May 15, Radica discovers that 72 units are the wrong color. Radica keeps 43 of these units because Mechanic sends a $92 credit memorandum to compensate. However, Radica returns the remaining 29 units to Mechanic. Mechanic restores the 29 returned units to its inventory.