Valley College Bookstore Profit Margin Fell Unexpectedly! Please read the following scenario and post your response by clicking "Reply" below this prompt. All of the accounting concepts you need to answer this discussion are in chapter 2. Reversing entries are explained in chapter 2, appendix B, pages 83-85. For this discussion, You must post before you can see others' replies This is one of the only times it's going to be OK to repeat the prompt questions in your response You do not have to respond to a classmate to get full points, but you are encouraged to do so Don't worry about getting the answers wrong. I realize this is not an easy discussion, but I would like you to try and please post your best analysis. The Los Angeles Community College Districts fiscal year ends June 30. At the end of the fiscal year, campus bookstores frequently return to the publishers as many unsold textbooks as they can, provided they know they are not going to be able to sell them in future semesters. Textbook publishers provide the bookstores with credit towards future purchases in the form of credit memos (credit memos are negative invoices from vendors). Bookstores frequently do these returns at the last minute, in June. The District does not use an allowance account and uses the periodic inventory system. This means that purchases and returns are debited and credited directly to expense. On June 30, 2018, the Los Angeles Valley College bookstore informed me that, during the month of June, they had returned $323,000 in textbooks and expected credit memos from vendors for that amount. The credit memos were in-transit at year-end, meaning they had not been received prior to June 30. As a result: I accrued $323,000 in-transit credit memos on June 30, 2018 to recognize the returns in fiscal year ending June 30, 2018. I reversed those accruals on July 1, 2018, in the next fiscal year. When the fiscal year ended the following year on June 30, 2019, we had the following problems with the LA Valley College bookstore: Purchases expensed for textbooks in fiscal year 2019 were approximately $200,000 higher than expected Bookstore operating margin was reduced almost 10%, where it had been consistent for the past 10 years (clarification - cost of goods sold percentage went up and gross margin percentage went down unexpectedly. This had nothing to do with price changes, changes in sales or demand.) More info: When bookstore vendor invoices are recorded, the district will Debit new textbook purchases (expense) Credit Accounts Payable When vendor invoices are paid, the district will Debit Accounts Payable Credit Cash When bookstore vendor credit memos are either received or accrued, the District will (note that a vendor credit memo is a reverse invoice): Debit Accounts Payable or Accounts Receivable (either is acceptable) Credit new textbook purchases (expense) Given the above scenario, please answer the following questions: What was the journal entry to accrue the in-transit credit memos? (The answer to this is GIVEN directly above). What was the journal entry to reverse the accrual? What was the net balance sheet effect of the accrual and subsequent reversal (disregard equity)? What was the effect on net income of the accrual in fiscal year 2018? What was the effect on net income of the reversal in fiscal year 2019? What could have happened to cause the $200,000 in unexpected purchases expense in 2019