Chapter 6, Problem 1PB

Reporting Purchase Transactions between Wholesale and Retail Merchandisers Using Perpetual Inventory Systems

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.

1. a. SSG sold merchandise to SRU at a selling price of $125,000. The merchandise had cost SSG $94,000.
2. 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.
3. c. Just three days later SRU paid SSG, which settled all amounts owed.

Required:

1. 1. Indicate the effect (direction and amount) of each transaction on the Inventory balance of SRU.
2. 2. Prepare the journal entries that SRU would record and show any computations.