Question

At the beginning of July, CD City has a balance in inventory of $3,200. The following transactions occur during the month of July.

July		3		Purchase CDs on account from Wholesale Music for $2,100, terms 1/10, n/30.
July		4		Pay cash for freight charges related to the July 3 purchase from Wholesale Music, $100.
July		9		Return incorrectly ordered CDs to Wholesale Music and receive credit, $200.
July		11		Pay Wholesale Music in full.
July		12		Sell CDs to customers on account, $5,400, that had a cost of $2,800.
July		15		Receive full payment from customers related to the sale on July 12.
July		18		Purchase CDs on account from Music Supply for $2,900, terms 1/10, n/30.
July		22		Sell CDs to customers for cash, $4,000, that had a cost of $2,300.
July		28		Return CDs to Music Supply and receive credit of $260.
July		30		Pay Music Supply in full.

A. Assuming that CD City uses a perpetual inventory system, record the transactions.

B. Prepare the top section of the multiple-step income statement through gross profit for the month of July.

Answer 1

	Ans A.
	Journal Entries
Date	Account Title	Dr $	Cr $
Jul 3.	Inventory	2,100
	Accounts Payable		2,100
Jul 4.	Inventory	100
	Cash		100
Jul 9.	Accounts Payable	200
	Inventory		200
Jul 11.	Accounts Payable	1,900
	Cash		1,881
	Inventory		19
Jul 12.	Sales		5,400
	Accounts Receivable	5,400
	Cost of Goods Sold	2,800
	Inventory		2,800
Jul 15.	Cash	5,400
	Accounts Receivable		5,400
Jul 18.	Inventory	2,900
	Accounts Payable		2,900
Jul 22.	Sales		4,000
	Accounts Receivable	4,000
	Cost of Goods Sold	2,300
	Inventory		2,300
Jul 28.	Accounts Payable	260
	Inventory		260
Jul 30.	Accounts Payable	2,640
	Cash		2,640

	Ans B,
	Sales Details
Jul 12.	Sales	5,400
Jul 22.	Sales	4,000
	Total Sales	9,400
	COGS details
Jul 12.	COGS related to sales	2,800
Jul 22.	COGS related to sales	2,300
	Total COGS	5,100

	CD City
	Income Statement(partial)
	Multip Step format
	for the Month of July
	Details	Amt $	Amt $
	Gross Sales Revenue		9,400
Less	Sales Return	-
Less	Sales Allowance	-
Less	Sales Discount	-
	Net Sales Revenue		9,400
	Cost of Goods Sold		5,100
	Gross Profit		4,300