Purchase-Related Transactions

Steritech Co., a furniture wholesaler, sells merchandise to Butler Co. on account, $86,000, terms 2/10, n/30. The cost of the merchandise sold is $51,600. Steritech Co. issues a credit memorandum for $5,000 ($4,900 net of the 2% discount) for merchandise that was damaged in shipment. Butler Co. agreed to keep the damaged merchandiise. Illustrate the effects on the accounts and financial statements of Butler Co.

If no account or activity is affected, select "No effect" from the dropdown and leave the corresponding number entry box blank. Enter account decreases and cash outflows as negative amounts.

a. The purchase.

Statement of Cash Flows	Balance Sheet								Income Statement
	Assets			=	Liabilities	+	Stockholders' Equity
	Cash	+	Inventory	=	No Effect	+		Retained Earnings
Statement of Cash Flows								Income Statement

b. The credit for damaged merchandise.

Statement of Cash Flows	Balance Sheet								Income Statement
	Assets			=	Liabilities	+	Stockholders' Equity
		+		=		+
Statement of Cash Flows								Income Statement

c. The payment of the invoice within the discount period.

Statement of Cash Flows	Balance Sheet								Income Statement
	Assets			=	Liabilities	+	Stockholders' Equity
		+		=		+
Statement of Cash Flows								Income Statement