On July |, Nikko Company purchased merchandise costing $14,000 on credit from Ham Company under terms n/30.When it received the merchandise, an inspection revealed that some was of inferior quality. Instead of returning the merchandise to Ham, Nikko was granted an allowance of $1,700, and it planned to sell the merchandise at its annual

“sidewalk sale.” Nikko uses the gross method to record its purchases.

Required: (1) Using T-accounts, show how Nikko Company would record the purchase, allowance, and payment.

(2) What source documents would be used to record each transaction?

(3) What is the net amount of the inventory after these transactions have been recorded?

 TYK-1