Question

You are a wholesaler who sells to retail stores in Ontario. You have the following transactions during the month of May, 2018.

Date	Description
May 1	Opening balances are as follows: cash of $15,930, inventory of $2,460, owner's capital of $10,000, and retained earnings of $8,390.
May 2	Purchase inventory from Grapes Inc. for $9,500, credit terms 2/15, n/45, shipping terms FOB destination.
May 3	The appropriate party paid $140 in freight costs.
May 5	Returned $1,500 of inventory to Grapes Inc. because it was the wrong type of grape. You ordered green and seedless, they sent purple with seeds.
May 12	Sold inventory to Plums Ltd. for $12,500, credit terms 1/10, n/30, shipping terms FOB shipping point. The cost of the inventory was $7,305.
May 13	The appropriate party paid $95 in freight costs.
May 15	You pay for the May 2 purchase of inventory from Grapes Inc.
May 18	Plums Ltd. returns $2,000 of the inventory because it was the wrong variety. They wanted plums, you sent prunes. The cost of the inventory returned was 60% of the selling price. You can resell the plums to other customers.
May 21	Plums Ltd. pays for the inventory sold to them on May 12.

Record the transactions into the expanded accounting equation using account names. Also, answer the questions below, after you complete the entries.

What is your gross profit ratio on your sale to Plums Ltd.? In your industry, gross profit ratios are often 45%. Given that, would you consider your gross profit ratio good or not? Be sure to explain!

Answer 1

Plums Ltd Date Transactions Liabilities Stockholders Equity Assets Note Common Retain Account Receivable ++ nventory Account Cash + Equipment Payable + PayableStock Earnin Income Statement Revenue Ex Dividends May-01|Beginning balance May-02 Purchase i May-03 Cash paid for freight May-05 Return Invento May-12 Sales invento May-12lCost of sale of Invento May-15 Cash Paid for account payable May-18 Goods return from customer May-18 | Cost of return goods 60% May-21 Cash received from customer 15,930 460 9,500 140 1,500 0 8,390 9,500 140 1,500 12,500 12,500 7,305 7,305 7,840) 7,840) 2,000 2,000 1,200 1,200 (105) 10,395 (10,500) 11 Net Income Ending Balance 18,345 95 160 10,000 8,390 10,500 6,210 Sales Less cost of goods sold 10500(12500 return 2000 6105 (7305 return 1200) 4395 ross Profit Gross profit ratio- Gross profit Sales 100 Gross profit ratio - 4395 100 10500 Gross profit ratio-