Question

The transactions listed below are typical of those involving Southern Sporting Goods (SSG) and Sports R Us (SRU). SSG is a wholesale merchandiser and SRU is a retail merchandiser. Assume all sales of merchandise from SSG to SRU 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 December 31 .

a. SSG sold merchandise to SRU at a selling price of $125,000 . The merchandise had cost SSG $94,000.

b. Two days later, SRU complained to SSG that some of the merchandise differed from what SRU had ordered. SSG agreed to give an allowance of $3,000 to SRU. SRU also returned some sporting goods, which had cost SSG $12,000 and had been sold to SRU for $16,500.

C. Just three days later SRU paid SSG, which settled all amounts owed.

PB6-1Part 1

Required:

1. Indicate the amount and direction of the effect (+ for increase, - for decrease, and N E for no effect) of each transaction on the Inventory balance of SRU. (Enter all amounts as positive values.)

2. 2. Prepare the journal entries that SRU would record.

Answer 1

1
Transaction	Effect on Inventory Balance
a	+	125000
b	-	19500
c	NE	0

2
	General Journal	Debit	Credit
a	Inventory	125000
	Accounts Payable		125000
b	Accounts Payable	19500		=3000+16500
	Inventory		19500
c	Accounts Payable	105500		=125000-19500
	Cash		105500