Wood Chuck Lumber Supplies is a finished wood provider for several local businesses. At the beginning of January, Wood Chuck had a $25,000 balance in cash and $25,000 in common stock. During the month of January, the following transactions took place:
January 2 Purchased $5,000 worth of lumber on account from a local lumberjack.
The terms were 2/15, n/30, FOB shipping point. Freight costs were $100.
January 6 Sold $2,000 of lumber to Locked Up Fencing on account, with terms 1/05, n/25, FOB destination. Freight costs were $25. The cost of the inventory sold was $750.
January 12 Paid for the January 2 purchase
January 15 Received payment in full from Locked Up Fencing
January 18 Sold $3,000 worth of wood to Extreme Cabinet Makers on account, with terms 5/10, n/45, FOB shipping point. Freight costs were $75. The cost of the inventory sold was $2,000.
January 19 Returned a small amount of poor quality lumber to the lumberjack and received cash payment of $75
January 22 Purchased $7,000 of lumber from Tree Choppers on account. Terms were n/45, FOB destination. Freight costs were $100.
January 25 Sold $5,000 worth of lumber to Cabin Fever for cash. Cabin Fever picked up the order, so there were no shipping costs. The cost of the inventory sold was $2,750.
January 31 Paid for the purchase made on January 22.
January 31 Declared and paid cash dividends of $400
1. Enter each transaction into the accounting equation, assuming Wood Chuck Lumber Supplies uses a perpetual inventory system. Start with the opening balances in cash and common stock described at the beginning of the problem.
2. Calculate the cost of goods sold for January and the ending balance in inventory.
3. Prepare the multistep income statement and the statement of changes in shareholders’ equity for the month of January, and the balance sheet at January 31.
4. Calculate the gross profit ratio for Wood Chuck Lumber Supplies for the month of January. Explain what the ratio measures.