Question

At the beginning of September 2021, Stojanovic Distributing Company's ledger showed Cash $12,500, Merchandise Inventory $7,500, and D. Stojanovic, Capital, $20,000. Stojanovic uses the perpetual inventory system and the earnings approach. During the month of September, the company had the following selected transactions:

Record and post inventory transactions—perpetual system and earnings approach. Prepare partial income statement.

Sept.  2		Purchased $13,500 of merchandise inventory from Moon Supply Co., terms 1/15, n/30, FOB destination.
4		The correct company paid $325 cash for freight charges on the September 2 purchase.
5		Sold merchandise inventory to Brandon Retailers for $18,000. The cost of the merchandise was $11,310 and the terms were 2/10, n/30, FOB destination.
6		Issued a $1,400 credit for merchandise returned by Brandon Retailers. The merchandise originally cost $890 and was returned to inventory.
6		The correct company paid $420 freight on the September 5 sale.
8		Purchased $900 of supplies for cash.
10		Purchased $6,450 of merchandise inventory from Tina Wholesalers, terms 2/10, n/30, FOB shipping point.
10		The correct company paid $150 freight costs on the purchase from Tina Wholesalers.
12		Received a $450 credit from Tina Wholesalers for returned merchandise.
15		Paid Moon Supply Co. the amount due.
15		Collected the balance owing from Brandon Retailers.
19		Sold merchandise for $10,875 cash. The cost of this merchandise was $6,855.
20		Paid Tina Wholesalers the balance owing from the September 10 purchase.
25		Made a $750 cash refund to a cash customer for merchandise returned. The returned merchandise had a cost of $470. The merchandise was damaged and could not be resold.
30		Sold merchandise to Dragen & Company for $6,420, terms n/30, FOB shipping point. Stojanovic's cost for this merchandise was $4,050.

Instructions

a. Record the transactions assuming Stojanovic uses a perpetual inventory system.

b. Set up general ledger accounts for Merchandise Inventory, Sales, Sales Returns and Allowances, Sales Discounts, and Cost of Goods Sold. Enter the beginning Merchandise Inventory balance, post the transactions, and calculate the balances for each account.

c. Prepare a partial multiple-step income statement, up to gross profit, for the month of September 2021.

Taking It Further  Assume that Stojanovic has a “no questions asked” policy in terms of accepting sales returns up to six months after the initial sale. What uncertainties does the company face in terms of calculating its gross profit for September?

Answer 1

Part-1)

Date   Particulars   Debit    Credit      
Sep-02   Merchandise Inventory   $13,500         
   Account Payable       $13,500     
                 
Sep-04   Freight out   $325         
   Cash       $325     
                 
Sep-05   Account Receivable   $18,000         
   Sales       $18,000     
                 
Sep-05   Cost of Goods Sold   $11,310         
   Merchandise Inventory       $11,310     
                 
Sep-06   Sales Returns And Allowance   $1,425         
   Account Receivable       $1,425     
                 
Sep-06   Merchandise Inventory   $890         
   Cost of Goods Sold       $890     
                 
Sep-06   Freight Out   $420         
   Cash       $420     
                 
Sep-08   Supplies   $900         
   Cash       $900     
                 
Sep-10   Merchandise Inventory   $6,450         
   Account Payable       $6,450     
                 
Sep-10   Freight In   $150         
   Cash       $150     
                 
Sep-12   Account Payable   $450         
   Merchandise Inventory       $450     
                 
Sep-15   Account Payable   $13,500         
   Merchandise Inventory       $135     
   Cash       $13,365     
                 
Sep-15   Cash   $16,244         
   Sales Discount   $331         
   Account Receivable       $16,575     
                 
Sep-19   Cash   $10,875         
   Sales       $10,875     
                 
   Cost of Goods Sold   $6,855         
   Merchandise Inventory       $6,855     
                 
Sep-20   Account Payable   $6,000         
   Merchandise Inventory       $120     
   Cash       $5,880     
                 
Sep-25   Sales Returns And Allowance   $750         
   Cash       $750     
                 
Sep-30   Account Receivable   $6,420         
   Sales       $6,420     
                 
   Cost of Goods Sold   $4,050         
   Merchandise Inventory       $4,050     

Part-2) Enclosed

Part-3)

Multi-step Income Statement             
Sales Revenue             
Sales       $35,295     
Minus: Sales Returns and Allowance   $2,175         
Sales Discount   $332   $2,507     
Net Sales       $32,788     
             
Cost of Goods Sold       $21,325     
             
Gross Profit       $11,463     

Sep. 5 Bal. Sep. 2 Merchandise Inventory 7,500 13,500 890 11,310 450 135 Sales Returns and Allowances Sep. 6 1,425 750 Balance 2,175 25 6,450 6,855 150 Sales Discount 120 4050 Sep. 15 Balance 332 332 Balance 5,570 Sales Sep. 5 19 Sep. 5 Sep. 6 890 18,000 10,875 6,420 35,295 Cost of Goods Sold 11,310.00 6,855.00 4,050.00 21,325.00 30 Balance 30 Balance