Question

 *Problem 5-1A

 Winters Hardware Store completed the following merchandising transactions in the month of May. At the beginning of May, Winters' ledger showed Cash of $8,000 and Common Stock of $8,000.

 May 1 Purchased merchandise on account from Black Wholesale Supply for $8,000, terms 1/10, n/30.

 2 Sold merchandise on account for $4,400, terms 2/10, n/30. The cost of the merchandise sold was $3,300.

 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 $3,100.

 15 Received $230 refund for return of poor-quality merchandise from supplier on cash purchase.

 17 Purchased merchandise from Wilhelm Distributors for $2,500, 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 $124. The returned merchandise had cost $90.

 31 Sold merchandise on account for $1,280, terms n/30. The cost of the merchandise sold was $830.

 Journalize the transactions using a perpetual inventory system. 

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

 Prepare an income statement through gross profit for the month or May 2017.

 Calculate the profit margin and the gross profit rate. (Assume operating expenses were $1,400.)

Answer 1

(a) Journal Entries:

Date	Account Titles and Explanation	Debit	Credit
May. 1	Merchandise inventory	$8,000
	Accounts Payable		$8,000
May. 2	Accounts Receivable	$4,400
	Sales		$4,400
	Cost of goods Sold	$3,300
	Merchandise inventory		$3,300
May. 5	Accounts Payable	$200
	Merchandise inventory		$200
May. 9	Cash	$4,312
	Sales Discount	$88
	Accounts Receivable		$4,400
May. 10	Accounts Payable	$7,800
	Merchandise inventory		$78
	Cash		$7,722
May. 11	Supplies	$900
	Cash		$900
May. 12	Merchandise inventory	$3,100
	Cash		$3,100
May. 15	Cash	$230
	Merchandise inventory		$230
May. 17	Merchandise inventory	$2,500
	Accounts Payable		$2,500
May. 19	Merchandise inventory	$250
	Cash		$250
May. 24	Cash	$5,500
	Sales		$5,500
	Cost of goods Sold	$4,100
	Merchandise inventory		$4,100
May. 25	Merchandise inventory	$800
	Accounts Payable		$800
May. 27	Accounts Payable	$2,500
	Merchandise inventory		$50
	Cash		$2,450
May. 29	Sales Returns and Allowances	$124
	Cash		$124
	Merchandise inventory	$90
	Cost of goods Sold		$90
May. 31	Accounts Receivable	$1,280
	Sales		$1,280
	Cost of goods Sold	$830
	Merchandise inventory		$830

(b) T-Accounts:

Cash
Date	Particulars	Ref.	Debit	Credit	Balance
May. 1	Opening Balance	✓			$8,000
May. 9		J1	$4,312		$12,312
May. 10		J1		$7,722	$4,590
May. 11		J1		$900	$3,690
May. 12		J1		$3,100	$590
May. 15		J1	$230		$820
May. 19		J1		$250	$570
May. 24		J1	$5,500		$6,070
May. 27		J1		$2,450	$3,620
May. 29		J1		$124	$3,496

Accounts Receivable
Date	Particulars	Ref.	Debit	Credit	Balance
May. 2		J1	$4,400		$4,400
May. 9		J1		$4,400	$0
May. 31		J1	$1,280		$1,280

Merchandise inventory
Date	Particulars	Ref.	Debit	Credit	Balance
May. 1		J1	$8,000		$8,000
May. 2		J1		$3,300	$4,700
May. 5		J1		$200	$4,500
May. 10		J1		$78	$4,422
May. 12		J1	$3,100		$7,522
May. 15		J1		$230	$7,292
May. 17		J1	$2,500		$9,792
May. 19		J1	$250		$10,042
May. 24		J1		$4,100	$5,942
May. 25		J1	$800		$6,742
May. 27		J1		$50	$6,692
May. 29		J1	$90		$6,782
May. 31		J1		$830	$5,952

Supplies
Date	Particulars	Ref.	Debit	Credit	Balance
May. 11		J1	$900		$900

Accounts Payable
Date	Particulars	Ref.	Debit	Credit	Balance
May. 1		J1		$8,000	$8,000
May. 5		J1	$200		$7,800
May. 10		J1		$7,800	$15,600
May. 17		J1		$2,500	$18,100
May. 25		J1		$800	$18,900
May. 27		J1	$2,500		$16,400

Common Stock
Date	Particulars	Ref.	Debit	Credit	Balance
May. 1	Opening Balance	✓			$8,000

Sales Revenue
Date	Particulars	Ref.	Debit	Credit	Balance
May. 2		J1		$4,400	$4,400
May. 24		J1		$5,500	$9,900
May. 31		J1		$1,280	$11,180

Sales Returns and Allowances
Date	Particulars	Ref.	Debit	Credit	Balance
May. 29		J1	$124		$124

Sales Discount
Date	Particulars	Ref.	Debit	Credit	Balance
May. 9		J1	$88		$88

Cost of Goods Sold
Date	Particulars	Ref.	Debit	Credit	Balance
May. 2		J1	$3,300		$3,300
May. 24		J1	$4,100		$7,400
May. 29		J1		$90	$7,310
May. 31		J1	$830		$8,140

(c) Income statement:

Winters Hardware Stores
Income Statement (partial)
Sales Revenue	$11,180
Less: Sales returns and allowances	-$124
Less: Sales discount	-$88
Net Sales		$10,968
Less: Cost of goods sold		-$8,140
Gross Profit		$2,828
Less: Operating Expenses		-$1,400
Net Profit Profit		$1,428

(d) Profit margin = Net Profit / Net sales = $1,428 / $10,968 = 13.02%

Gross Profit Rate = Gross profit / (Sales - Sales returns) = $2,828 / ($11,180 - $124) = 25.58%

Answer 2

May 10 should be debit A.P. 8000, credit Cash 7920, credit Inventory 80.

Answer 3

Also Profit margin: 1428/10968=13.02%

Gross profit rate: 2828/10968= 25.78%

This was wrong in the first comment.