Question

Problem 5-2A Latona Hardware Store completed the following merchandising transactions in the month of May. At the beginning of May, the ledger of Latona showed Cash of $5,450 and Common Stock of $5,450. May 1 Purchased merchandise on account from Gray’s Wholesale Supply $4,000, terms 2/10, n/30. 2 Sold merchandise on account $1,600, terms 1/10, n/30. The cost of the merchandise sold was $1,450. 5 Received credit from Gray’s Wholesale Supply for merchandise returned $400. 9 Received collections in full, less discounts, from customers billed on sales of $1,600 on May 2. 10 Paid Gray’s Wholesale Supply in full, less discount. 11 Purchased supplies for cash $340. 12 Purchased merchandise for cash $1,300. 15 Received refund for poor quality merchandise from supplier on cash purchase $110. 17 Purchased merchandise from Amland Distributors $1,100, FOB shipping point, terms 2/10, n/30. 19 Paid freight on May 17 purchase $170. 24 Sold merchandise for cash $3,100. The merchandise sold had a cost of $2,140. 25 Purchased merchandise from Horvath, Inc. $560, FOB destination, terms 2/10, n/30. 27 Paid Amland Distributors in full, less discount. 29 Made refunds to cash customers for defective merchandise $70. The returned merchandise had a fair value of $20. 31 Sold merchandise on account $1,400, terms n/30. The cost of the merchandise sold was $510. Latona 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. 311 Common Stock, No. 401 Sales Revenue, No. 412 Sales Returns and Allowances, No. 414 Sales Discounts, and No. 505 Cost of Goods Sold.

Journalize the transactions using a perpetual inventory system. (Credit account titles are automatically indented when amount is entered. Do not indent manually.)

Enter the beginning cash and common stock balances and post the transactions. (Post entries in the order of journal entries presented in the previous question.)

Prepare an income statement through gross profit for the month of May 2015.

Answer 1

1) Journal Entries (Amounts in $)

Date	Account Titles and Explanations	Debit	Credit
May 1	Inventory	4,000
	Accounts Payable		4,000
	(To record the purchases on account)
May 2	Accounts Receivable	1,600
	Sales Revenue		1,600
	(To record the credit sales)
	Cost of Goods Sold	1,450
	Inventory		1,450
	(To record the cost of goods sold)
May 5	Accounts Payable	400
	Inventory		400
	(To record the purchase returns)
May 9	Cash (1,600-16)	1,584
	Sales Discounts (1,600*1%)	16
	Accounts Receivable		1,600
	(To record the cash collected on account)
May 10	Accounts Payable (4,000-400)	3,600
	Inventory (3,600*2%)		72
	Cash (3,600-72)		3,528
	(To record the amount paid to suppliers)
May 11	Supplies	340
	Cash		340
	(To record the supplies purchased)
May 12	Inventory	1,300
	Cash		1,300
	(To record the cash purchases)
May 15	Cash	110
	Inventory		110
	(To record the cash refund for poor quality of goods)
May 17	Inventory	1,100
	Accounts Payable		1,100
	(To record the purchases on account)
May 19	Inventory	170
	Cash		170
	(To record the freight paid)
May 24	Cash	3,100
	Sales Revenue		3,100
	(To record the cash sales)
	Cost of goods sold	2,140
	Inventory		2,140
	(To record the cost of goods sold)
May 25	Inventory	560
	Accounts Payable		560
	(To record the credit purchases)
May 27	Accounts Payable	1,100
	Inventory (1,100*2%)		22
	Cash (1,100-22)		1,078
	(To record the amount paid to supplier)
May 29	Sales returns and Allowances	70
	Cash		70
	(To record the sales return)
	Inventory	20
	Cost of goods sold		20
	(To record the cost of goods returned)
May 31	Accounts Receivable	1,400
	Sales Revenue		1,400
	(To record the credit sales)
	Cost of goods sold	510
	Inventory		510
	(To record the cost of goods sold)

The posting of the above entries to ledgers is shown as follows:- (Amounts in $)

Cash 101
Date	Account Titles	Debit	Credit	Balance
May 1	Beginning Balance	5,450		5,450
May 9	Accounts Receivable	1,584		7,034
May 10	Accounts Payable		3,528	3,506
May 11	Supplies		340	3,166
May 12	Inventory		1,300	1,866
May 15	Inventory	110		1,976
May 19	Inventory		170	1,806
May 24	Sales Revenue	3,100		4,906
May 27	Accounts Payable		1,078	3,828
May 29	Sales returns and Allowances		70	3,758
May 31	Ending Balance			3,758

Accounts Receivable 112
Date	Account Titles	Debit	Credit	Balance
May 2	Sales Revenue	1,600		1,600
May 9	Cash		1,584	16
May 9	Sales Discounts		16	0
May 31	Sales Revenue	1,400		1,400
May 31	Ending Balance			1,400

Inventory 120
Date	Account Titles	Debit	Credit	Balance
May 1	Accounts Payable	4,000		4,000
May 2	Cost of goods sold		1,450	2,550
May 5	Accounts Payable		400	2,150
May 10	Accounts Payable		72	2,078
May 12	Cash	1,300		3,378
May 15	Cash		110	3,268
May 17	Accounts Payable	1,100		4,368
May 19	Cash	170		4,538
May 24	Cost of goods sold		2,140	2,398
May 25	Accounts Payable	560		2,958
May 27	Accounts Payable		22	2,936
May 29	Cost of goods sold	20		2,956
May 31	Cost of goods sold		510	2,446
May 31	Ending Balance			2,446

Supplies 126
Date	Account Titles	Debit	Credit	Balance
May 11	Cash	340		340
May 31	Ending Balance			340

Accounts Payable 201
Date	Account Titles	Debit	Credit	Balance
May 1	Inventory		4,000	4,000
May 5	Inventory	400		3,600
May 10	Inventory	72		3,528
May 10	Cash	3,528		0
May 17	Inventory		1,100	1,100
May 25	Inventory		560	1,660
May 27	Inventory	22		1,638
May 27	Cash	1,078		560
May 31	Ending Balance			560

Common Stock 311
Date	Account Titles	Debit	Credit	Balance
May 1	Beginning Balance		5,450	5,450
May 31	Ending Balance			5,450

Sales Revenue 401
Date	Account Titles	Debit	Credit	Balance
May 2	Accounts Receivable		1,600	1,600
May 24	Cash		3,100	4,700
May 31	Accounts Receivable		1,400	6,100
May 31	Ending Balance			6,100

Sales Returns and Allowances 412
Date	Account Titles	Debit	Credit	Balance
May 29	Cash	70		70
May 31	Ending Balance			70

Sales Discounts 414
Date	Account Titles	Debit	Credit	Balance
May 9	Accounts Receivable	16		16
May 31	Ending Balance			16

Cost of Goods Sold 505
Date	Account Titles	Debit	Credit	Balance
May 2	Inventory	1,450		1,450
May 24	Inventory	2,140		3,590
May 29	Inventory		20	3,570
May 31	Inventory	510		4,080
May 31	Ending Balance			4,080

Income Statement for the Month of May 2015 (Amounts in $)

Sales Revenue	6,100
Sales Discounts	(16)
Sales Returns and Allowances	(70)
Net Sales		6,014
Cost of goods sold		(4,080)
Gross Profit		1,934