Question: Refer to Exercise and prepare the appropriate journal entries for DeSoto Co. to record the May 5 purchase and each of the three separate transactions a through c. DeSoto is a retailer that uses a perpetual inventory system and purchases these units for resale.
Exercise: Spare Parts was organized on May 1, 2011, and made its first purchase of merchandise on May 3. The purchase was for 1,000 units at a price of $10 per unit. On May 5, Spare Parts sold 600 of the units for $14 per unit to DeSoto Co. Terms of the sale were 2y10, ny60. Prepare entries for Spare Parts to record the May 5 sale and each of the following separate transactions a through c using a perpetual inventory system.
a. On May 7, DeSoto returns 200 units because they did not fit the customer's needs. Spare Parts restores the units to its inventory.
b. On May 8, DeSoto discovers that 50 units are damaged but are still of some use and, therefore, keeps the units. Spare Parts sends DeSoto a credit memorandum for $300 to compensate for the damage.
c. On May 15, DeSoto discovers that 72 units are the wrong color. DeSoto keeps 43 of these units because Spare Parts sends a $92 credit memorandum to compensate. DeSoto returns the remaining 29 units to Spare Parts. Spare Parts restores the 29 returned units to its inventory.