Question

Required information PA6-1 Reporting Purchase Transactions between Wholesale and Retail Merchandisers Using Perpetual Inventory Systems [LO 6-3] [The following information applies to the questions displayed 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 n/30, and 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. New Books sold merchandise to Readers’ Corner at a selling price of $650,000. The merchandise had cost New Books $455,000. 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 $13,500 to Readers’ Corner. Readers’ Corner also returned some books, which had cost New Books $4,000 and had been sold to Readers’ Corner for $5,500. Just three days later, Readers’ Corner paid New Books, which settled all amounts owed. PA6-1 Part 1 Required: Indicate the amount and direction of the effect (+ for increase, − for decrease, and NE for no effect) of each transaction on the Inventory balance of Readers’ Corner. (Enter all amounts as positive values.)

	Effect on
Transaction	Inventory Balance
a.	+	650,000
b.	-	(5,500)
c.	NE

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Journal entry worksheet

1-Record the purchase of $650,000 on account.

2-Record the return of unsatisfactory merchandise for which credit was given.

3- Record the payment in full.

Answer 1

Account Titles	Debit	Credit
1-Record the purchase of $650,000 on account.
Merchandise Inventory	$ 6,50,000.00
Accounts Payable		$ 6,50,000.00
2-Record the return of unsatisfactory merchandise for which credit was given.
Accounts Payable	$      5,500.00
Merchandise Inventory		$      5,500.00
3- Record the payment in full.
Accounts Payable	$ 6,44,500.00
Cash		$ 6,44,500.00