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 $11,200 and Common Stock of $11,200.

May 1		Purchased merchandise on account from Black Wholesale Supply for $7,900, terms 1/10, n/30.
2		Sold merchandise on account for $4,800, terms 2/10, n/30. The cost of the merchandise sold was $3,600.
5		Received credit from Black Wholesale Supply for merchandise returned $300.
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 $1,260.
12		Purchased merchandise for cash $4,340.
15		Received $322 refund for return of poor-quality merchandise from supplier on cash purchase.
17		Purchased merchandise from Wilhelm Distributors for $2,750, terms 2/10, n/30.
19		Paid freight on May 17 purchase $350.
24		Sold merchandise for cash $7,700. The cost of the merchandise sold was $5,740.
25		Purchased merchandise from Clasps Inc. for $1,120, terms 3/10, n/30.
27		Paid Wilhelm Distributors in full, less discount.
29		Made refunds to cash customers for returned merchandise $135. The returned merchandise had cost $90.
31		Sold merchandise on account for $1,792, terms n/30. The cost of the merchandise sold was $1,162.

Journalize the transactions using a perpetual inventory system. (If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts. Credit account titles are automatically indented when amount is entered. Do not indent manually. Record journal entries in the order presented in the problem.)

Post the transactions to T-accounts. Be sure to enter the beginning cash and common stock balances. (Post entries in the order of journal entries posted in part (a). Round answers to 0 decimal places, e.g. 5,275.)

Prepare an income statement through gross profit for the month of May 2017. (Round answers to 0 decimal places, e.g. 5,275.)

Calculate the profit margin and the gross profit rate. (Assume operating expenses were $1,960.) (Round answers to 1 decimal place, e.g. 15.5%.)

Profit margin		enter percentages rounded to 1 decimal place	%
Gross profit rate		enter percentages rounded to 1 decimal place	%

Answer 1

	Journal entry	Dr	Cr
01-May	Inventory	7900
	To accounts payable		7900
02-May	Accounts receivables	4800
	to sales		4800
	Cost of goods sold	3600
	To inventory		3600
05-May	Accounts payable	300
	To inventory		300
09-May	Cash	4704
	Sales discount	96
	To accounts receivables		4800
10-May	Accounts payable	7600
	To discount received		76
	To cash		7524
11-May	Supplies	1260
	To cash		1260
12-May	Inventory	4340
	To cash		4340
15-May	Cash	322
	To inventory		322

17-May	Inventory	2750
	To accounts payable		2750
19-May	Freight in	350
	To cash		350
24-May	Cash	7700
	To sales		7700
	Cost of goods sold	5740
	To inventory		5740
25-May	Inventory	1120
	To accounts payable		1120
27-May	Accounts payable	2750
	To cash		2695
	To discount received		55
29-May	Sales returns and allowance	135
	To cash		135
	Inventory	90
	To cost of goods sold		90
31-May	Accounts receivable	1792
	To sales		1792
	Cost of goods sold	1162
	To inventory		1162

Inventory
	Dr		Cr
01-May	7900	02-May	3600
12-May	4340	05-May	300
17-May	2750	15-May	322
29-May	90	24-May	5740
25-May	1120	31-May	1162
End balance	5076
Accounts payable
	Dr		Cr
05-May	300	01-May	7900
10-May	7600	17-May	2750
27-May	2750	25-May	1120
		End balance	1120
Accounts receivables
	Dr		Cr
02-May	4800	09-May	4800
31-May	1792
End balance	1792
Sales
	Dr		Cr
		02-May	4800
		24-May	7700
		31-May	1792
		End balance	14292

Cost of goods sold
	Dr		Cr
02-May	3600	29-May	90
24-May	5740
31-May	1162
End balane	10412
Cash
	Dr		Cr
Beg balance	11200	10-May	7524
09-May	4704	11-May	1260
15-May	322	12-May	4340
24-May	7700	19-May	350
29-May	135	27-May	2695
End balance	22442
Sales discount
	Dr		Cr
09-May	96
End balance	96
Purchase discount
	Dr		Cr
		10-May	76
		27-May	55
		End balance	131

Supplies
	Dr		Cr
10-May	1260
End balance	1260
Freigt in
	Dr		Cr
19-May	350
End balance	350

Income statement
Sales	14292
Less: Sales discount	96
Less: Sales returns and allowances	135
Net sales		14061
Cost of goods sold	10412
Less: purchase discounts	131
Add: frieght in	350	10631
Gross profit		3430
Less: operating expenses		1960
Profit		1470
Gross profit margin	=3430/14061	24.39%
Profit margin	=1470/14061	10.45%