M Midterm #2 ·> C Dezto.mheducation.com/hm.tpx xC Chegg Study | Guided Sol x PAW

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M Midterm #2 ·> C Dezto.mheducation.com/hm.tpx xC Chegg Study | Guided Sol x PAWS for Students [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 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. New Books sold merchandise to Readers' Corner at a selling price of $590,000. The merchandise had cost New Books $431,000 a. 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 $14,000 to Readers' Corner Just three days later, Readers' Corner paid New Books, which settled all amounts owed. c. 16. 00 value: Required Information 10.00 points 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.) les Returns and llowances Transaction Sales Revenues Sales Discounts Net Sales les Cost of Goods SoldGross Profit a. 590,000 590,000 431,000 159,000 14,000 0 -590000-14000 C. 2 7:25

Explanation / Answer

1) Transaction Sales revenue Sale returns Sales discount Net sales Cost of goods sold Gross Profit & allowance A B C D= A-B-C E F = D-E a) 590000 0 0 590000 431000 159000 b) 0 14000 0 576000 0 0 c) 11520 564480 0 0 2) Sales revenue combined behind the scene Sale returns & allowance combined behind the scene Sales discount combined behind the scene Net sales reported in external financial statements Cost of goods sold reported in external financial statements Gross Profit reported in external financial statements 3) a) Accounts receivable Dr 590000          Sales revenue Cr 590000 Cost of goods sold Dr 431000          Inventory Cr 431000 b) Sales return & allowance Dr 14000             Accounts receivable Cr 14000 c) Cash Dr 564480 Sales Discount Dr 11520            Accounts receivable Cr 576000

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