Question

Crane Hardware Store completed the following merchandising transactions in the month of May. At the beginning of May, Cranes’ ledger showed Cash of $8,300 and Common Stock of $8,300.

A. Journalize the above May transactions using a perpetual system.

B. Post the transactions to T-accounts. Be sure to enter the beginning cash and common stock balances.

C. Prepare an income statement, through Gross Profit for the month of May.

D. Calculate the Profit Margin and Gross Profit Rate.

May 1		Purchased merchandise on account from Black Wholesale Supply for $8,300, terms 1/10, n/30.
2		Sold merchandise on account for $4,700, terms 2/10, n/30. The cost of the merchandise sold was $3,600.
5		Received credit from Black Wholesale Supply for merchandise returned $200.
9		Received collections in full, less discounts, from customers billed on May 2.
10		Paid Black Wholesale Supply in full, less discount.
11		Purchased supplies for cash $900.
12		Purchased merchandise for cash $3,300.
15		Received $230 refund for return of poor-quality merchandise from supplier on cash purchase.
17		Purchased merchandise from Wilhelm Distributors for $2,700, terms 2/10, n/30.
19		Paid freight on May 17 purchase $250.
24		Sold merchandise for cash $5,500. The cost of the merchandise sold was $4,100.
25		Purchased merchandise from Clasps Inc. for $800, terms 3/10, n/30.
27		Paid Wilhelm Distributors in full, less discount.
29		Made refunds to cash customers for returned merchandise $108. The returned merchandise had cost $82.
31		Sold merchandise on account for $1,280, terms n/30. The cost of the merchandise sold was $857.

Answer 1

A. Journalize the above May transactions using a perpetual system.

Date	Description	Debit	Credit
May-01	Inventory (merchandise)	$8,300
May-01	Accounts Payable (Black Wholesale)		$8,300
	Purchased merchandise on account from Black Wholesale Supply for $8,300, terms 1/10, n/30.
May-02	Account Receivable	$4,700
May-02	Sales of Goods		$4,700
	Sold merchandise on account for $4,700, terms 2/10, n/30.
May-02	Cost of Goods Sold	$3,600
May-02	Inventory (merchandise)		$3,600
	The cost of the merchandise sold was $3,600.
May-05	Accounts Payable (Black Wholesale)	$200
May-05	Inventory (merchandise)		$200
	Received credit from Black Wholesale Supply for merchandise returned $200.
May-09	Cash	$4,606
May-09	Sales cash discount	$94
May-09	Account Receivable		$4,700
	Received collections in full, less discounts, from customers billed on May 2.
May-10	Accounts Payable (Black Wholesale)	$8,100
May-10	Purchase discount		$81
May-10	Cash		$8,019
	Paid Black Wholesale Supply in full, less discount.
May-11	Office supplies	$900
May-11	Cash		$900
	Purchased supplies for cash $900.
May-12	Inventory (merchandise)	$3,300
May-12	Cash		$3,300
	Purchased merchandise for cash $3,300.
May-15	Cash	$230
May-15	Inventory (merchandise)		$230
	Received $230 refund for return of poor-quality merchandise from supplier on cash purchase.
May-17	Inventory (merchandise)	$2,700
May-17	Accounts Payable (Wilhelm Distributors)		$2,700
	Purchased merchandise from Wilhelm Distributors for $2,700, terms 2/10, n/30.
May-19	Freight Inwards	$250
May-19	Cash		$250
	Paid freight on May 17 purchase $250.
May-24	Cash	$5,500
May-24	Sales of Goods		$5,500
	Sold merchandise for cash $5,500.
May-24	Cost of Goods Sold	$4,100
May-24	Inventory (merchandise)		$4,100
	The cost of the merchandise sold was $4,100.
May-25	Inventory (merchandise)	$800
May-25	Accounts Payable (Clasps Inc)		$800
	Purchased merchandise from Clasps Inc. for $800, terms 3/10, n/30.
May-27	Accounts Payable (Wilhelm Distributors)	$2,700
May-27	Purchase discount		$54
May-27	Cash		$2,646
	Paid Wilhelm Distributors in full, less discount.
May-29	Sales of Goods	$108
May-29	Cash		$108
	Made refunds to cash customers for returned merchandise $108.
May-29	Inventory (merchandise)	$82
May-29	Cost of Goods Sold		$82
	The returned merchandise had cost $82.
May-31	Account Receivable	$1,280
May-31	Sales of Goods		$1,280
	Sold merchandise on account for $1,280, terms n/30.
May-31	Cost of Goods Sold	$857
May-31	Inventory (merchandise)		$857
	The cost of the merchandise sold was $857.

C. Prepare an income statement, through Gross Profit for the month of May.

Income Statement
Sales of Goods	$11,372
Sales cash discount	($94)
Sales of Goods (net)		$11,278
Cost of Goods Sold	$8,475
Freight Inwards	$250
Purchase discount	($135)
Cost of Goods Sold		($8,590)
Gross Profit		$2,688
Office supplies		($900)
Net Profit		$1,788

D. Calculate the Profit Margin and Gross Profit Rate.

Gross Profit Rate = Gross Profit / Net Sales = 23.83 % [2,688 / 11,278]

Net Profit Margin = Net Profit / Net Sales = 15.85 % [1,788 / 11,278]

B. Post the transactions to T-accounts. Be sure to enter the beginning cash and common stock balances.

Cash - Ledger (T Account)
Date	Particulars	Debit	Date	Particulars	Credit
May-01	To Opening Balance	$8,300	May-10	Accounts Payable (Black Wholesale)	$8,019
May-09	Account Receivable	$4,606	May-11	Office supplies	$900
May-15	Inventory (merchandise)	$230	May-12	Inventory (merchandise)	$3,300
May-24	Sales of Goods	$5,500	May-19	Freight Inwards	$250
			May-27	Accounts Payable (Wilhelm Distributors)	$2,646
			May-29	Sales of Goods - Refund	$108
			May-31	Closing Balance	$3,413
		$18,636			$18,636

Changes in Equity

Common stock Opening Balance	$8,300
Add: Sales of Goods	$11,372
Less: Sales cash discount	($94)
Less: Cost of Goods Sold	($8,475)
Less: Freight Inwards	($250)
Add: Purchases Discounts	$135
Less: Office supplies	($900)
Common stock Closing Balance	$10,088