At the beginning of February, Ace Distribution Company, Inc., started with a contribution of $10,000 cash in exchange for common stock from its shareholders. The company engaged in the following transactions during the month of February:

February 2 Purchased merchandise on account from Enter Supply Co. for $7,100, terms 2/10, n/45

February 5 Sold merchandise on account to Exit Company for $6,000, terms 2/10, n/30 and FOB destination. The cost of the merchandise sold was $4,500.

February 6 Paid $100 freight on the sale to Exit Company

February 8 Received credit from Enter Supply Co. for merchandise returned for $500

February 10 Paid Enter Supply Co. in full

February 12 Received payment from Exit Company for sale made on February 5

February 14 Purchased merchandise for cash for $5,200

February 16 Received refund from supplier for returned merchandise on

February 14 cash purchase of $350

February 17 Purchased merchandise on account from Inware Distributors for $3,800, terms 1/10, n/30

February 18 Paid $250 freight on February 17 purchase

February 21 Sold merchandise for cash for $10,350. The cost of the merchandise sold was $8,200.

February 24 Purchased merchandise for cash for $2,300

February 25 Paid Inware Distributors for purchase on February 17

February 27 Gave refund of $200 to customer from February 21. The cost of the returned merchandise was $135.

February 28 Sold merchandise of $3,000 on account with the terms 2/10, n/30. The merchandise cost $2,300.

Requirements

1. Enter each transaction into the accounting equation, assuming Ace Distribution Company 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 balance in the inventory account at the end of February.

3. Prepare a multistep income statement, the statement of changes in shareholders’ equity, and the statement of cash flows for the month of February. Prepare a balance sheet at February 28.

4. Calculate the gross profit ratio.