A buyer uses a perpetual inventory system, and on December 7 , it contacts its supplier to report that some of the merchandise purchased on December 5 was defective. The seller offered to reduce the merchandise price by \( \$ 400 \). The buyer agreed to keep the defective merchandise under those terms.

To solve this problem, we need to analyze the situation step by step, focusing on the financial implications of the defective merchandise and the price reduction offered by the seller. ### Known Conditions: 1. The buyer uses a perpetual inventory system. 2. The buyer reported defective merchandise purchased on December 5. 3. The seller offered a price reduction of \( \$ 400 \). 4. The buyer agreed to keep the defective merchandise. ### Steps to Solve: 1. **Understanding the Perpetual Inventory System**: - In a perpetual inventory system, inventory records are updated continuously as transactions occur. This means that any changes in inventory value due to returns, discounts, or defects are recorded immediately. 2. **Impact of the Price Reduction**: - The price reduction of \( \$ 400 \) will affect the cost of goods sold (COGS) and the inventory value. Since the buyer agreed to keep the defective merchandise, the inventory will not be returned, but its value will be adjusted. 3. **Adjusting Inventory and COGS**: - The adjustment for the price reduction will be recorded as a decrease in inventory and a corresponding decrease in COGS. This is because the buyer is effectively paying less for the merchandise. ### Calculation: - The adjustment to the inventory can be represented as: \[ \text{New Inventory Value} = \text{Old Inventory Value} - 400 \] - The same amount will be reflected in the COGS: \[ \text{New COGS} = \text{Old COGS} - 400 \] ### Conclusion: The buyer will reduce the inventory value and COGS by \( \$ 400 \) due to the price reduction for the defective merchandise. This adjustment reflects the new cost of the merchandise that the buyer has agreed to keep. If you need further calculations or specific values for inventory or COGS, please provide those details!