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 trans-actions between the two companies occurred in the order listed during the year ended December 31.
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.
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.
c. Just three days later Sports R Us paid Southern Sporting Goods, which settled all amounts owed.
Required:
1. Indicate the effect (direction and amount) of each transaction on the Inventory balance of Sports R Us.
2. Prepare the journal entries that Sports R Us would record and show any computations.