[The following information applies to the questions displayed below.] The transa

Question

[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 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.

Explanation / Answer

Readers Corner's effect on inventory Transaction Inventory Balance        1 Dr $ Cr $ a                    565,000 b                     11,500 c                     16,605        2 Calculation Purchase Of inventory                    565,000 Less : Sales allowance                      (11,500) Net Payable                    553,500 Cash Discount @3%=                       16,605 Net Cash paid                    536,895 Journal Entry Account Title Dr $ Cr $ a Marchandise Inventory                    565,000 Accounts Payable                  565,000 b Marchandise Inventory                     11,500 Accounts Payable                       11,500 c Accounts Payable                    553,500 Marchandise Inventory                     16,605 Cash                  536,895

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