The following transactions occurred during July 2010 at Tiny’s Sports Shop:

July 2Purchased weights on credit from Barbells Company for $900, with terms 3/10, n/30

July 4Paid freight of $75 on the July 2 purchase

July 8Sold merchandise to members on credit for $500, terms n/45. The merchandise sold cost $425.

July 9Received credit of $50 from Barbells for damaged goods that were returned

July 11Purchased workout equipment from Spinners for cash for $2,000

July 13Paid Barbells Company in full

July 15Purchased gloves and workout belts from Get Pumped on credit for

$1,000, terms 5/15, n/60

July 17Received credit of $25 from Get Pumped for damaged merchandise

July 19Sold merchandise to members on account, $750, terms n/15. The cost of the merchandise sold was $250.

July 20Received $700 in cash payment on account from members

July 23Paid Get Pumped in full

July 27Granted an allowance of $50 to members for gear that didn’t work properly

July 29Received $400 in cash payments on account from members

July 31Paid cash operating expenses of $500 for the month

Requirements

1. Suppose Tiny’s Sports Shop started the month with cash of $8,000, merchandise inventory of $2,000, and common stock of $10,000. Enter each transaction into the accounting equation, assuming Tiny’s Sports Shop uses a perpetual inventory system.

2. Calculate the cost of goods sold for July and the ending balance in inventory.

3. Prepare the multistep income statement, and the statement of changes in shareholders’ equity for the month of July, and the balance sheet at July 31.

4. Calculate the gross profit ratio for Tiny’s Sports Shop for July. Explain what the ratio measures.