Use the information in CP6-6 (page 291 in Chapter 6) to complete the following requirements.
Information From CP6-6
a. Amalgamated sold merchandise to American Fashions at a selling price of $230,000. The merchandise had cost Amalgamated $175,000.
b. Two days later, American Fashions complained to Amalgamated that some of the merchandise differed from what American Fashions had ordered. Amalgamated agreed to give an allowance of $5,000 to American Fashions.
c. Just three days later, American Fashions paid Amalgamated, which settled all amounts owed.
Required:
1. Indicate the effect (direction and amount) of each transaction on the Inventory balance of American Fashions.
2. Prepare the journal entries that American Fashions would record and show any computations.