Here is what I do...
When I have my 505 plugged into the USB port and Ebook Library running and in the left hand pain it shows Sony Reader, I double click where it says Sony Reader. Then once that is expanded, I make sure I have Sony Reader selected. Then I click the + at the bottom and it creates a collection which I then rename. And from Books or Sony Reader, I drag the books into the collection I want them in.
If I was doing this on a memory card, it would be the same process but I would be highlighting the memory card instead of the Sony Reader for the internal memory.
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