Question

P5.2A (LO 2, 3, 5) Financial Statement Renner Hardware Store completed the following merchan- dising transactions in the month of May. At the beginning of May, the ledger of Renner showed Cash of $5,000 and Owner's Capital of $5,000. May 1 Purchased merchandise on account from Braun'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 Braun'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 Braun'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 Valley 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 on account from Lumley, Inc. $620, FOB destination, terms 2/10, n/30. 27 Paid Valley 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. Renner 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 Jl for the journal reference.) c. Prepare an income statement through gross profit for the month of May 2020.

Answer 1

Solution:-

(a) General Journal J1 Date Account Titles and Explanation Ref. Debit Credit May 1 120 4,200 Inventory Accounts Payable. 201 4,200 2 Accounts Receivable 112 2,100 Sales Revenue.. 401 2,100 Cost of Goods Sold 505 1,300 Inventory 120 1,300 5 201 300 Accounts Payable. Inventory 120 300 9 101 2,079 2,079 Cash ($2,100 - $21) Sales Discounts ($2,100 X 1%). Accounts Receivable 414 21 112 2,100 10 201 3,900 Accounts Payable ($4,200 – $300) Inventory ($3,900 X 2%) Cash 120 78 101 3,822 11 Supplies 126 400 Cash 101 400

12 120 1,400 Inventory Cash 101 1,400 15 Cash 101 150 Inventory 120 150 17 120 1,300 Inventory Accounts Payable.. 201 1,300 19 Inventory 120 130 Cash 101 130 General Journal J1 Date Account Titles and Explanation Ref. Debit Credit May 24 Cash 101 3,200 Sales Revenue 401 3,200 Cost of Goods Sold 505 2,000 Inventory 120 2,000 25 120 620 Inventory Accounts Payable. 201 620 27 201 1,300 Accounts Payable Inventory ($1,300 X 2%). 120 26 Cash 101 1,274 29 Sales Returns and Allowances, 412 70 Cash 101 70

120 30 Inventory Cost of Goods Sold. 505 30 31 Accounts Receivable 112 1,000 Sales Revenue 401 1,000 Cost of Goods Sold. 505 560 Inventory 120 560 (b) Cash No. 101 Date Explanation Ref. Debit Credit Balance May 1 Balance 5,000 9 J1 2,079 7,079 3,257 10 J1 3,822 11 J1 400 2,857 12 J1 1,400 1,457 15 J1 150 19 J1 130 24 J1 3,200 1,607 1,477 4,677 3,403 3,333 27 J1 1,274 29 J1 70 Accounts Receivable No. 112 Date Explanation Ref. Debit Credit Balance May 2 J1 2,100 2,100 9 5 5 5 2,100 0 31 1,000 1,000 Inventory No. 120

Date Explanation Ref. Debit Credit Balance May 1 4,200 4,200 2 1,300 2,900 5 300 5 5 5 5 5 5 10 78 2,600 2,522 3,922 3,772 12 1,400 15 150 17 J1 1,300 130 19 24 2,000 5,072 5,202 3,202 3,822 3,796 25 620 5 5 5 5 5 5 27 26 29 30 3,826 31 560 3,266 Supplies No. 126 Date Explanation Ref. Debit Credit Balance May 11 J1 400 400 No. 201 Accounts Payable Date Explanation Ref. Debit Credit Balance May 1 J1 4,200 4,200 5 300 3,900 10 5 5 5 3,900 0 17 1,300 1,300 1,920 25 J1 620 27 J1 1,300 620 No. 301 Owner's Capital Date Explanation 1 Balance Ref. Debit Credit Balance May 5,000

Sales Revenue No. 401 Date Explanation Ref. Debit Credit Balance May 2 J1 2,100 2,100 24 J1 3,200 5,300 31 J1 1,000 6,300 Sales Returns and Allowances No. 412 Date Explanation Ref. Debit Credit Balance May 29 J1 70 70 Sales Discounts No. 414 Date Explanation Ref. Debit Credit Balance May 9 J1 21 21 Cost of Goods Sold No. 505 Date Explanation Ref. Debit Credit Balance May 2 1,300 1,300 24 2,000 3,300 5 5 5 5 29 30 3,270 31 560 3,830 (c) RENNER HARDWARE STORE Income Statement (Partial) For the Month Ended May 31, 2020 Sales revenues Sales revenue $6,300 Less: Sales returns and allowances $70 Sales discounts 21 91

Net sales 6,209 3,830 Cost of goods sold. Gross profit $2,379