PA6-1 Reporting Purchase Transactions between Wholesale and Retail Merchandisers Using Perpetual Inventory Systems [LO 6-3]

[The following information applies to the questions displayed below.]

The transactions listed below are typical of those involving New Books Inc. and Readers Corner. New Books is a wholesale merchandiser and Readers Corner is a retail merchandiser. Assume all sales of merchandise from New Books to Readers Corner are made with terms 2/10, n/30, and that the two companies use perpetual inventory systems. Assume the following transactions between the two companies occurred in the order listed during the year ended August 31.

a.	New Books sold merchandise to Readers Corner at a selling price of $650,000. The merchandise had cost New Books $455,000.
b.	Two days later, Readers Corner complained to New Books that some of the merchandise differed from what Readers Corner had ordered. New Books agreed to give an allowance of $13,500 to Readers Corner.
c.	Just three days later, Readers Corner paid New Books, which settled all amounts owed.

PA6-1 Part 1

Required:

1.

Indicate the effect (direction and amount) of each transaction on the Inventory balance of Readers' Corner. (Enter all amounts as positive values.)

	Effect on
Transaction	Inventory Balance
a.
b.
c.

PA6-1 Part 2

2.	Prepare the journal entries that Readers Corner would record and show any computations. (If no entry is required for a transaction/event, select "No Journal Entry Required" in the first account field.)

1. Record the inventory purchased of $650,000 on account on terms 2/10, n/30.

2. Record the return of $13,500 unsatisfactory merchandise for which credit was given.

3. Record the payment in full.