Use the information in PA6-1 to complete the following requirements.
Info PA6-1
a. New Books sold merchandise to Readers' Corner at a selling price of $ 550,000. The merchandise had cost New Books $ 415,000.
b. Two days later, Readers' Corner complained to New Books that some of the merchandise differed from what Readers' Corner had ordered. New Books agreed to give an allowance of $ 10,000 to Readers' Corner.
c. Just three days later, Readers' Corner paid New Books, which settled all amounts owed.
Required:
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 New Books in terms of the following items.
2. Which of the above items are likely to be reported on New Books' external financial statements, and which items will be combined behind the scenes?
3. Prepare the journal entries that New Books would record, and show any computations.