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Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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The transactions listed below are typical of those involving New Books Incorporated 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 $575,000. The merchandise had cost New Books $425,000.
- 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 $12,500 to Readers’ Corner. Readers’ Corner also returned some books, which had cost New Books $2,500 and had been sold to Readers’ Corner for $4,000.
- Just three days later, Readers’ Corner paid New Books, which settled all amounts owed.
- Prepare the journal entries New Books would record. (If no entry is required for a transaction/event, select "No
Journal Entry Required" in the first account field.)
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Record the sales on account of $575,000 to Readers’ Corner on terms n/30.
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2Record the cost of goods sold of $425,000.
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3Record the returns and allowances granted to Reader's Corner.
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4Record the cost of goods sold adjustment to inventory.
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5Record the receipt of payment in full from Readers’ Corner.
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