The transactions listed below are typical of those involving New Books Inc. and Readers’ Corner… 1 answer 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 3/10, 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 $595,000. The merchandise had cost New Books $433,000. 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 $14,500 to Readers’ Corner. c.

Just three days later, Readers’ Corner paid New Books, which settled all amounts owed.

12.

value:
6.00 points

Required information

Required: 1.

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

     

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.)

Record the inventory purchased of $595,000 on account on terms 3/10, n/30.

Record the return of $14,500 unsatisfactory merchandise for which credit was given.

Record the payment in full.

Part B)

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 $600,000. The merchandise had cost New Books $435,000. 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 $15,000 to Readers’ Corner. c. Just three days later, Readers’ Corner paid New Books, which settled all amounts owed.

For each of the events (a) through (c), indicate the amount and direction of the effect on New Books in terms of the following items. (Enter any decreases to account balances with a minus sign.)

      

Which of the below items are likely to be reported on New Books’ external financial statements, and which items will be combined “behind the scenes”? Prepare the journal entries to record New Books transactions. (If no entry is required for a transaction/event, select “No Journal Entry Required” in the first account field.)

Record the sales on account of $600,000 to Readers’ Corner.

Record the cost of goods sold of $435,000.

Record the return of $15,000 unsatisfactory merchandise by Readers’ Corner for which credit was given to the customer.

Record the receipt of payment in full from Readers’ Corner.

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