Question

At the beginning of July, CD City has a balance in inventory of $2,850. The following transactions occur during the month of July.
July 3 Purchase CDs on account from Wholesale Music for $1,750, terms 2/10, n/30.

July 4 Pay freight charges related to the July 3 purchase from Wholesale Music, $120.

July 9 Return incorrectly ordered CDs to Wholesale Music and receive credit, $400.

July 11 Pay Wholesale Music in full.

July 12 Sell CDs to customers on account, $4,700, that had a cost of $2,450.

July 15 Receive full payment from customers related to the sale on July 12.

July 18 Purchase CDs on account from Music Supply for $2,550, terms 2/10, n/30.

July 22 Sell CDs to customers for cash, $3,650, that had a cost of $1,950.

July 28 Return CDs to Music Supply and receive credit of $190.

July 30 Pay Music Supply in full.

Required:

1. Assuming that CD City uses a perpetual inventory system, record the transactions. (If no entry is required for a transaction/event, state "No journal entry required".)

2. Prepare the top section of the multiple-step income statement through gross profit for the month of July.

Answer 1

Answer:

Gross profit = $ 3950.

Explanation:

1.

July-3. Dr Merchandise Inventory   1750

                   Cr Accounts payable    1750

  ( To record purchase of inventory on account)

July-4. Dr Merchandise Inventory   120

                                              Cr Cash   120

  ( To record payment of freight charges)

July-9 Dr Accounts payable  400

                 Cr Merchandise Inventory   400

   ( To record return of inventory)

July-11 Dr Accounts payable  1750

                        Cr Cash                  1750

 ( To record payment from wholesale music in full)

July-12.a) Dr Cost of goods sold 2450

                         Cr  Merchandise inventory   2450

          b)  Dr Account receivable  4700

                         Cr   Sales revenue       4700

    (To record sales of goods to a customer)

July-15. Dr Cash  4700

                      Cr  Account receivable  4700

      ( To record receipt from sale of goods)

July-18 Dr Merchandise inventory 2550

                      Cr Accounts payable           2550

       (To record purchase of inventory on account)

July-22.a) Dr  Cost of goods sold  1950

                                 Cr merchandise inventory   1950

                 Dr Account receivable   3650

                                 Cr sales revenue     3650

           (To record sales of goods on account)

July-28 Dr Accounts payable 190

                  Cr Merchandise inventory   190

      (To record purchase return)

   

July-30. Dr Accounts payable  2550

                     Cr Cash                        2550

       (To record paid in full).

2.                                              Income statement

Sales (4700+3650)                                                                         = 8350

Less: Cost of goods sold (2450+1950)                                          =(4400)

                               Gross profit                                                         3950