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 retall 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 .

a. New Books sold merchandise to Readers' Corner at a selling price of $585,000. The merchandise had cost New Books $429,000

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 $13,500 to Readers' Corner. Readers' Corner also returned some books, which had cost New Books $2,700 and had been soid to Readers' Corner for $4,200

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

Required:

1. 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.)

Answer 1

1
Transaction	Sales Revenues	Sales Returns	Sales Allowances	Net Sales	Cost of goods sold	Gross Profit
a	585000			585000	429000	156000
b		4200	13500	(17700)	(2700)	(15000)
c
Note: For transaction (c) there is no effect on above accounts.