Question

Pharoah Hardware Store completed the following merchandising transactions in the month of May. At the beginning of May, the ledger of Pharoah showed Cash of $5,000 and Owner’s Capital of $5,000.

May 1		Purchased merchandise on account from Braun's Wholesale Supply $4,500, terms 2/10, n/30.
2		Sold merchandise on account $2,400, terms 1/10, n/30. The cost of the merchandise sold was $1,000.
5		Received credit from Braun's Wholesale Supply for merchandise returned $400.
9		Received collections in full, less discounts, from customers billed on sales of $2,400 on May 2.
10		Paid Braun's Wholesale Supply in full, less discount.
11		Purchased supplies for cash $400.
12		Purchased merchandise for cash $1,300.
15		Received refund for poor quality merchandise from supplier on cash purchase $100.
17		Purchased merchandise from Valley Distributors $1,200, FOB shipping point, terms 2/10, n/30.
19		Paid freight on May 17 purchase $120.
24		Sold merchandise for cash $3,300. The merchandise sold had a cost of $2,000.
25		Purchased merchandise on account from Lumley, Inc. $750, FOB destination, terms 2/10, n/30.
27		Paid Valley Distributors in full, less discount.
29		Made refunds to cash customers for defective merchandise $60. The returned merchandise had a fair value of $40.
31		Sold merchandise on account $1,500, terms n/30. The cost of the merchandise sold was $500.

Pharoah 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. 301 Owner’s Capital, No. 401 Sales Revenue, No. 412 Sales Returns and Allowances, No. 414 Sales Discounts, and No. 505 Cost of Goods Sold.

Instructions.

-Journalize the transactions using a perpetual inventory system.

-Enter the beginning cash and capital balances and post the transactions.

-Prepare an income statement through gross profit for the month of May 2020.

Answer 1

Prepare journal entry as follows:

Date	Accounts name and explanation	Debit	Credit
1	Merchandise inventory	4500
	Accounts payable		4500
2	Accounts receivable	2400
	Sales		2400
	cost of goods sold	1000
	Merchandise inventory		1000
5	Accounts payable	400
	Merchandise inventory		400
9	Cash	2376
	Sales discount	24
	Accounts receivable		2400
10	Accounts payable	4100
	Merchandise inventory		82
	Cash		4018
11	Supplies	400
	cash		400
12	Merchandise inventory	1300
	Cash		1300
15	Cash	100
	Merchandise inventory		100
17	Merchandise inventory	1200
	Accounts payable		1200
19	Merchandise inventory	120
	cash		120
24	Accounts receivable	3300
	Sales		3300
	cost of goods sold	2000
	Merchandise inventory		2000
25	Merchandise inventory	750
	Cash		750
27	Accounts payable	1200
	Merchandise inventory		24
	Cash		1176
29	Sales return and allowances	60
	Cash		60
	Merchandise inventory	40
	cost of goods sold		40
31	Accounts receivable	1500
	Sales		1500
	cost of goods sold	500
	Merchandise inventory		500

Compute the ending cash and capital balances as follows:

Cash:

Date	Reference	Debit	Credit	Balance
1				5000
9		2376		7376
10			4018	3358
11			400	2958
12			1300	1658
15		100		1758
19			120	1638
25			750	888
27			1176	-288
29			60	-348

Capital:

Date	Reference	Debit	Credit	Balance
1				5000

Prepare income statement as follows:

Income Statement
Sales (2400+3300+1500)	7200
Less:
Sales return and allowances	-60
Sales discounts	-24
Net sales	7116
Cost of goods sold (1000-40+500+2000)	-3460
Gross profit	3656