Question

Problem 5-2A

Sheffield Corp. completed the following merchandising transactions in the month of May. At the beginning of May, the ledger of Sheffield Corp. showed Cash of $5,000 and Common Stock of $5,000.

May 1		Purchased merchandise on account from Gray's Wholesale Supply $4,300, terms 2/10, n/30.
2		Sold merchandise on account $2,300, terms 1/10, n/30. The cost of the merchandise sold was $1,200.
5		Received credit from Gray's Wholesale Supply for merchandise returned $250.
9		Received collections in full, less discounts, from customers billed on sales of $2,300 on May 2.
10		Paid Gray's Wholesale Supply in full, less discount.
11		Purchased supplies for cash $350.
12		Purchased merchandise for cash $1,500.
15		Received refund for poor quality merchandise from supplier on cash purchase $150.
17		Purchased merchandise from Amland Distributors $1,400, FOB shipping point, terms 2/10, n/30.
19		Paid freight on May 17 purchase $110.
24		Sold merchandise for cash $3,400. The merchandise sold had a cost of $1,900.
25		Purchased merchandise on account from Horvath, Inc. $550, FOB destination, terms 2/10, n/30.
27		Paid Amland Distributors in full, less discount.
29		Made refunds to cash customers for defective merchandise $80. The returned merchandise had a fair value of $40.
31		Sold merchandise on account $1,000, terms n/30. The cost of the merchandise sold was $600.

Sheffield Corp. ’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.

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

b. 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.)

c. Prepare an income statement through gross profit for the month of May 2019.

Answer 1

a.

Journalize as follows:

Date	Accounts name and explanation	Debit	Credit
1	Merchandise inventory	4300
	Accounts payable		4300
2	Accounts receivable	2300
	Sales		2300
	cost of goods sold	1200
	Merchandise inventory		1200
5	Accounts payable	250
	Merchandise inventory		250
9	Cash	2277
	Sales discount	23
	Accounts receivable		2300
10	Accounts payable	4050
	Merchandise inventory		81
	Cash		3969
11	Supplies	350
	cash		350
12	Merchandise inventory	1500
	Cash		1500
15	Cash	150
	Merchandise inventory		150
17	Merchandise inventory	1400
	Accounts payable		1400
19	Merchandise inventory	110
	cash		110
24	Accounts receivable	3400
	Sales		3400
	cost of goods sold	1900
	Merchandise inventory		1900
25	Merchandise inventory	550
	Cash		550
27	Accounts payable	1400
	Merchandise inventory		28
	Cash		1372
29	Sales return and allowances	80
	Cash		80
	Merchandise inventory	40
	cost of goods sold		40
31	Accounts receivable	1000
	Sales		1000
	cost of goods sold	600
	Merchandise inventory		600

b.

Post cash and common stock balances as follows:

Date	Reference	Debit	Credit	Balance
1				5000
9		2277		7277
10			3969	3308
11			350	2958
12			1500	1458
15		150		1608
19			110	1498
25			550	948
27			1372	-424
29			80	-504
Date	Reference	Debit	Credit	Balance
1				5000

c.

Prepare Income statement as follows:

Income Statement
Sales (2300+3400+1000)	6700
Less:
Sales return and allowances	-80
Sales discounts	-23
Net sales	6597
Cost of goods sold (1200+1900+600-40)	-3660
Gross profit	2937