At the beginning of July, CD City has a balance in inventory of $3,400. The following
July4Pay cash for freight charges related to the July 3 purchase from Wholesale Music, $110.
July9Return incorrectly ordered CDs to Wholesale Music and receive credit, $200.
July11Pay Wholesale Music in full.
July12Sell CDs to customers on account, $5,800, that had a cost of $3,000.
July15Receive full payment from customers related to the sale on July 12.
July18Purchase CDs on account from Music Supply for $3,100, terms 1/10, n/30.
July22Sell CDs to customers for cash, $4,200, that had a cost of $2,500.
July28Return CDs to Music Supply and receive credit of $300.
July30Pay Music Supply in full.
Required:
1. Assuming that CD City uses a perpetual inventory system, record the transactions.2. Prepare the top section of the multiple-step income statement through gross profit for the month of July.
Journal Entries
July 3
CDs Inventory $2,300 (debit)
Trade Payable - Wholesale Music $2,300 (credit)
July 4
Freight Charges $110 (debit)
Cash $110 (credit)
July 9
Trade Payable - Wholesale Music $200 (debit)
CDs Inventory $200 (credit)
July 11
J1
Trade Payable - Wholesale Music $2,079 (debit)
Cash $2,079 (credit)
J2
Trade Payable - Wholesale Music $21 (debit)
Discount Received $21 (credit)
July 12
J1
Trade Receivable $5,800 (debit)
Revenue $5,800 (credit)
J2
Cost of Goods Sold $3,000 (debit)
Inventory CDs $3,000 (credit)
July 15
Cash $5,800 (debit)
Trade Receivable $5,800 (credit)
July 18
Inventory CDs $3,100 (debit)
Trade Payable - Music Supply $3,100 (credit)
July 22
J1
Cash $4,200 (debit)
Revenue $4,200 (credit)
J2
Cost of Goods Sold $2,500 (debit)
Inventory CDs $2,500 (credit)
July 28
Trade Payable - Music Supply $300 (debit)
CDs Inventory $300 (credit)
July 30
J1
Trade Payable - Wholesale Music $2,772 (debit)
Cash $2,772 (credit)
J2
Trade Payable - Wholesale Music $28 (debit)
Discount Received $28 (credit)
multiple-step income statement
Revenue ($4,200+$5,800) $10,000
Less Cost of Goods Sold :
Opening Stock $3,400
Add Purchases ( $2,300 + $3,100) $5,400
Less Returns Outwards ( $200 + $300) ($500)
Add Freight Charges $110
$8,190
Less Closing Stock (Balancing figure) ($190)
Cost of Goods Sold ($3,000+ $2,500) $8,000
Gross Profit $2,000
Explanation:
The Income Statement is Prepared on Accrual Basis of Accounting meaning that Revenues and Expenses are recorded when they occur or incur not when cash is paid or received.
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