Question

P5-1B Krey Distributing Company completed these merchandising transactions in the month of April. At the beginning of April, the ledger of Krey showed Cash of $10,000 and Common Stock of $10,000. Apr. 2 Purchased merchandise on account from Am-Bev Co. $8,700, terms 2/10, n/30. 4 Sold merchandise on account $6,000, terms 2/10, n/30. The cost of the merchandise sold was $3,700. 5 Paid $200 freight on April 4 sale. 6 Received credit from Am-Bev Co. for merchandise returned $400. 11 Paid Am-Bev Co. in full, less discount. 13 Received collections in full, less discounts, from customers billed on April 4. 14 Purchased merchandise for cash $4,700. 16 Received refund from supplier for returned merchandise on cash purchase of April 14, $500. 18 Purchased merchandise from Lohr Distributors $5,500, terms 2/10, n/30. 20 Paid freight on April 18 purchase $180. 23 Sold merchandise for cash $8,300. The cost of the merchandise sold was $5,580. 26 Purchased merchandise for cash $2,300. 27 Paid Lohr Distributors in full, less discount. 29 Made refunds to cash customers for returned merchandise $180. The returned merchandise had a cost of $120. 30 Sold merchandise on account $3,980, terms n/30. The cost of the merchandise sold was $2,500. Krey Distributing Company’s chart of accounts includes Cash, Accounts Receivable, Inventory, Accounts Payable, Common Stock, Sales Revenue, Sales Returns and Allowances, Sales Discounts, Cost of Goods Sold, and Freight-Out. Instructions (a) Journalize the transactions. (b) Post the transactions to T-accounts. Be sure to enter the beginning cash and common stock balances. (c) Prepare the income statement through gross profit for the month of April 2014. (d) Calculate the profit margin and the gross profit rate. (Assume operating expenses were $3,000.)

Answer 1

1)

		Debit	Credit
Apr-02	Inventory	8,700
	Accounts Payable		8,700
Apr-04	Accounts Receivable	6,000
	Sales Revenue		6,000
	Cost of Goods Sold	3,700
	Inventory		3,700
Apr-05	Freight-out	200
	Cash		200
Apr-06	Accounts Payable	400
	Inventory		400
Apr-11	Accounts Payable	8,300
	Cash		8,134
	Inventory ($8,300 * 2%)		166
Apr-13	Cash	5,880
	Sales discounts ($6,000 * 2%)	120
	Accounts Receivable		6,000
Apr-14	Inventory	4,700
	Cash		4,700
Apr-16	Cash	500
	Inventory		500
Apr-18	Inventory	5,500
	Accounts Payable		5,500
Apr-20	Inventory	180
	Cash		180
Apr-23	Cash	8,300
	Sales Revenue		8,300
	Cost of Goods Sold	5,580
	Inventory		5,580
Apr-26	Inventory	2,300
	Cash		2,300
Apr-27	Accounts Payable	5,500
	Cash		5,390
	Inventory (5,500 * 2%)		110
Apr-29	Sales Returns and Allowances	180
	Cash		180
	Inventory	120
	Cost of Goods Sold		120
Apr-30	Accounts Receivable	3,980
	Sales revenue		3,980
	Cost of Goods Sold	2,500
	Inventory		2,500

　

2) Enclosed

3)

Partial Income Statement
Sales
Sales Revenue		18,280
Minus: Sales Returns and Allowances	180
Minus: Sales Discounts	120
NET SALES		17,980
Cost of Goods Sold		11,660
GROSS PROFIT		6,320

　

4)

Profit Margin = Net Income ÷ Net Sales = 4030 ÷ 17980 = 22.4%

Gross Profit Rate = Gross Profit ÷ Net Sales= 6320 ÷ 17980 = 35.15 %