Question 1. Purchase and Sale Inventory

Case 1

Bad Eyesight Aussie (the owner of Terrible View Limited) sold 1,000 pairs of visors to Dishonest Mitch a long-term customer on December 1, 2020.

The sale was for $194,000 (all on credit). The value of the sunglasses was $75,000.

As a long-term customer, Bad Eyesight Aussie agreed to offer following terms of 3/15, n/30.

Four days (December 4, 2020) after the purchase, Dishonest Mitch called to say that some of the glasses were not well made and he was returning 35% of the purchase. The cost of goods returned originally cost Bad Eyesight Aussie $16,250.

On December 7, Dishonest Mitch called to say he was going to return all remaining stock he purchased on December 1, 2020. However, after some swift negotiation Bad Eyesight Aussie convinced Dishonest Mitch to keep all the remaining stock but he would only need to pay $76,000 for the stock he kept.

On December 12, 2020 Dishonest Mitch paid 30% of the amount he owed Bad Eyesight Aussie. And on December 21, 2020 he paid the rest.

Case 2

Rotten Wheel Limited is a merchandise company selling running shoes and cosmetics. Ugly Mitch Blueheeler (owner of Rotten Wheel Limited) purchased 10,000 wigs from his best supplier Dinosaur Mother Limited on July 1, 2020. The wigs cost $150,000 and was purchased on credit with the terms 4/15, n/30.

Six days after purchase, Rotten Wheel Limited returned 30% of the wigs as they were the wrong colour.

Ten days after purchase Rotten Wheel Limited threatened to return all the remaining wigs due to poor quality. However, Dinosaur Mother Limited said that if he kept the remaining stock in full then Rotten Wheel Limited would only have to paid $68,000 for the purchase owed.

Rotten Wheel Limited paid 20% of the outstanding balance on July 13, 2020 with the rest paid on July 31, 2020.

Required: Write all relevant journal entries for month of July 2020 for Rotten Wheel Limited for the events in Case 2.

Required: Write all relevant journal entries for month of July 2020 for Bad Eyesight Aussie Mitch Limited for the events in Case 1. [1.5 Marks]