The transactions listed below are typical of those involving New Books Inc. and

Question

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 $550,000. The merchandise had cost New Books $415,000.

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 $10,000 to Readers’ Corner.

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

Prepare the journal entries that Reader's Corner would record and show any computations.

Transaction List:

1. Record the inventory purchased of $550,000 on account on terms 2/10, n/30.

2. Record the return of $10,000 unstaisfactory merchandise for which credit was given.

3. Record the payment in full.

****I'm having most diffiuclty in transactions 2 & 3****

Explanation / Answer

Readers' Corner All Amounts in $ 2. New Books Inc. A/c 10000 To Purchase Return A/c 10000 3. New Books Inc. A/c 540000 To Bank A/c 529200 To Discount on Purchases A/c 10800

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