At the beginning of June 2014, Willingham Distributing Company's ledger showed Cash $18,000, Merchandise Inventory $5,000, and D. Willingham, Capital, $23,000. During the month of June, the company had the following selected transactions:

June 1 Purchased $9,000 of merchandise inventory from Sun Supply Co., terms 1/15, n/30, FOB destination.

2 The correct company paid $225 cash for freight charges on the June 1 purchase.

5 Sold merchandise inventory to Moose Jaw Retailers for $12,000. The cost of the merchandise was $7,540 and the terms were 2/10, n/30, FOB destination.

6 Issued a $950 credit for merchandise returned by Moose Jaw Retailers. The merchandise originally cost $595 and was returned to inventory.

6 The correct company paid $290 freight on the June 5 sale.

7 Purchased $800 of supplies for cash.

10 Purchased $4,300 of merchandise inventory from Fey Wholesalers, terms 2/10, n/30, FOB shipping point.

10 The correct company paid $100 freight costs on the purchase from Fey Wholesalers.

12 Received a $300 credit from Fey Wholesalers for returned merchandise.

14 Paid Sun Supply Co. the amount due.

15 Collected the balance owing from Moose Jaw Retailers.

19 Sold merchandise for $7,250 cash. The cost of this merchandise was $4,570.

20 Paid Fey Wholesalers the balance owing from the June 10 purchase.

25 Made a $500 cash refund to a cash customer for merchandise returned. The returned merchandise had a cost of $315. The merchandise was damaged and could not be resold.

30 Sold merchandise to Bauer & Company for $4,280, terms n/30, FOB shipping point. Willingham's cost for this merchandise was $2,700.

Instructions

(a) Record the transactions assuming Willingham uses a perpetual inventory system.

(b) Set up general ledger accounts for Merchandise Inventory, Sales, Sales Returns and Allowances, Sales Discounts, and Cost of Goods Sold. Enter the beginning merchandise inventory balance, and post the transactions.

(c) Prepare a partial multiple-step income statement, up to gross profi t, for the month of June 2014.

Taking It Further

Assume that Willingham has a "no questions asked" policy in terms of accepting sales returns up to six months after the initial sale. What uncertainties does the company face in terms of calculating its gross profit for June?