Use the data for Valley Company in Problem 5-4 to complete the following requirements.
In Problem 5-4, Valley Company's adjusted trial balance on August 31, 2013, its fiscal year end, follows.
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On August 31, 2012, merchandise inventory was $ 25,400. Supplementary records of merchandising activities for the year ended August 31, 2013, reveal the following itemized costs.
Invoice cost of merchandise purchases . . . . . . . . $ 92,000
Purchase discounts received . . . . . . . . . . . . . . . . . 2,000
Purchase returns and allowances . . . . . . . . . . . . . 4,500
Costs of transportation in . . . . . . . . . . . . . . . . . . 4,600
Required:
1. Prepare closing entries as of August 31, 2013 (the perpetual inventory system is used). Analysis Component
2. The company makes all purchases on credit, and its suppliers uniformly offer a 3% sales discount. Does it appear that the company's cash management system is accomplishing the goal of taking all available discounts? Explain.
3. In prior years, the company experienced a 4% returns and allowance rate on its sales, which means approximately 4% of its gross sales were eventually returned outright or caused the company to grant allowances to customers. How do this year's results compare to prior years'results?