Chapter 6, Problem 6.2PB

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

The transactions listed below are typical of those involving Southern Sporting Goods and Sports R Us, Southern Sporting Goods is a wholesale merchandiser and Sports R Us is a retail merchandiser. Assume all sales of merchandise from Southern Sporting Goods to Sports R Us 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 December 31.

1. a. Southern Sporting Goods sold merchandise to Sports R Us at a selling price of $125,000. The merchandise had cost Southern Sporting Goods $94,000.
2. b. Two days later, Sports R Us complained to Southern Sporting Goods that some of the merchandise differed from what Sports R Us had ordered. Southern Sporting Goods agreed to give an allowance of $3,000 to Sports R Us.
3. c. Just three days later Spoils R Us paid Southern Sporting Goods, which settled all amounts owed.

Required:

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

PB6-2 Reporting Sales Transactions between Wholesale and Retail Merchandisers Using Perpetual Inventory Systems

Use the information in PB6-1 to complete the following requirements.

Required:

1. 1. For each of the events (a) through (c), indicate the amount and direction of the effect (+ for increase, − for decrease, and NE for no effect) on Southern Sporting Goods in terms of the following items.

1. 2. Which of the above items are likely to be reported on Southern Sporting Goods’ external financial statements, and which items will be combined “behind the scenes”?
2. 3. Prepare the journal entries that Southern Sporting Goods would record and show any computations.