Question

P5-2B

Boone Hardware Store completed the following merchandising transactions in

the month of May. At the beginning of May, the ledger of Boone showed Cash of

$5,000 and Owner's Capital of $5,000.

May

1

Purchased merchandise on account from Adewale's Wholesale Supply

$4,200, terms 2/10, n/30.

2

Sold merchandise on account $2,100, terms 1/10, n/30. The cost of the

merchandise sold was $1,300.

5

Received credit from Adewale's Wholesale Supply for merchandise

returned $300.

9

Received collections in full, less discounts, from customers billed on

sales of $2,100 on May 2.

10

Paid Adewale's Wholesale Supply in full, less discount.

11

Purchased supplies for cash $400.

12

Purchased merchandise for cash $1,400.

15

Received refund for poor quality merchandise from supplier on cash

purchase $150.

17

Purchased merchandise from Agbaje Distributors $1,300, FOB

shipping point, terms 2/10, n/30.

19

Paid freight on May 17 purchase $130.

24

Sold merchandise for cash $3,200. The merchandise sold had a cost of

$2,000.

25

Purchased merchandise from Somerhalder, Inc. $620, FOB destination,

terms 2/10, n/30.

27

Paid Agbaje Distributors in full, less discount.

29

Made refunds to cash customers for defective merchandise $70. The

returned merchandise had a fair value of $30.

31

Sold merchandise on account $1,000 terms n/30. The cost of the

merchandise sold was $560.

Boone Hardware's chart of accounts includes the following: No. 101 Cash, No.

112 Accounts Receivable, No. 120 Inventory, No. 126 Supplies, No. 201

Accounts Payable, No. 301 Owner's Capital, No. 401 Sales Revenue, No. 412

Sales Returns and Allowances, No. 414 Sales Discounts, and No. 505 Cost of

Goods Sold.

Instructions

(a)

Journalize the transactions using a perpetual inventory system.

(b)

Enter the beginning cash and capital balances and post the transactions.

(Use J1 for the journal reference.)

(c)

Prepare an income statement through gross profit for the month of May

2012.

Answer 1

Solution:

1)

Date	Particulars	Debit	Credit
May-01	Merchandise inventory	4200
	Accounts Payable		4200
May-02	Accounts Receivable	2100
	Sales		2100
	Cost of goods Sold	1300
	Merchandise inventory		1300
May-05	Accounts Payable	300
	Merchandise inventory		300
May-09	Cash	2079
	Sales discount	21
	Accounts receivable		2100
May-10	Accounts Payable	3900
	Merchandise Inventory		78
	Cash		3822
May-11	Supplies	400
	Cash		400
May-12	Merchandise Inventory	1400
	Cash		1400
May-15	Cash	150
	Merchandise Inventory		150
May-17	Merchandise inventory	1300
	Accounts Payable		1300
May-19	Merchandise inventory	130
	Cash		130
May-24	Accounts Receivable	3200
	Sales		3200
	Cost of goods Sold	2000
	Merchandise inventory		2000
May-25	Merchandise inventory	620
	Cash		620
May-27	Accounts Payable	1300
	Merchandise inventory		26
	Cash		1274
May-29	Sales return & allowances	70
	Cash		70
	Merchandise inventory	30
	Cost of goods Sold		30
May-31	Accounts Receivable	1000
	Sales		1000
	Cost of goods sold	560
	Merchandise inventory		560

2)

Date	Reference	Debit	Credit	Balance
01-May	J1			5,000
09-May	J1	2,079		2,921
10-May	J1		3,822	6,743
11-May	J1		400	7,143
12-May	J1		1,400	8,543
15-May	J1	150		8,393
19-May	J1		130	8,523
25-May	J1		620	9,143
27-May	J1		1,274	10,417
29-May	J1		70	10,487

3) Income Statement

Sales Revenues
Sales		6,300
Less Sales Returns and Allowances	70
Less Sales Discounts	21	91
Net Sales		6,209
Cost of Goods Sold		-3,830
Gross Profit		2,379