Waters Hardware Store completed the following merchandising transactions in the month of May. At the beginning of May, Waters’ ledger showed Cash of $8,000 and Common Stock of $8,000.
May 1 Purchased merchandise on account from Hauke Wholesale Supply for $8,000, terms 1/10, n/30.
2 Sold merchandise on account for $4,400, terms 2/10, n/30. The cost of the merchandise sold was $3,300.
5 Received credit from Hauke Wholesale Supply for merchandise returned $200.
9 Received collections in full, less discounts, from customers billed on May 2.
10 Paid Hauke Wholesale Supply in full, less discount.
11 Purchased supplies for cash $900.
12 Purchased merchandise for cash $3,100.
15 Received $230 refund for return of poor-quality merchandise from supplier on cash purchase.
17 Purchased merchandise from Friedrich Distributors for $2,500, terms 2/10, n/30.
19 Paid freight on May 17 purchase $250.
24 Sold merchandise for cash $5,500. The cost of the merchandise sold was $4,100.
25 Purchased merchandise from Fasteners Inc. for $800, terms 3/10, n/30.
27 Paid Friedrich Distributors in full, less discount.
29 Made refunds to cash customers for returned merchandise $124. The returned merchandise had cost $90.
31 Sold merchandise on account for $1,280, terms n/30. The cost of the merchandise sold was $830.Waters Hardware’s chart of accounts includes Cash, Accounts Receivable, Inventory, Supplies, Accounts Payable, Common Stock, Sales Revenue, Sales Returns and Allowances, Sales Discounts, and Cost of Goods Sold.
(a) Journalize the transactions using a perpetual inventory system.
(b) Post the transactions to T-accounts. Be sure to enter the beginning cash and common stock balances.
(c) Prepare an income statement through gross profit for the month of May 2014.
(d) Calculate the profit margin and the gross profit rate. (Assume operating expenses were $1,400.)