At the beginning of July, CD City has a balance in inventory of $3,000. The foll
ID: 2567005 • Letter: A
Question
At the beginning of July, CD City has a balance in inventory of $3,000. The following transactions occur during the month of July.
July 3 Purchase CDs on account from Wholesale Music for $1,900, terms 1/10, n/30.
July 4 Pay cash for 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, $5,000, that had a cost of $2,600.
July 15 Receive full payment from customers related to the sale on July 12.
July 18 Purchase CDs on account from Music Supply for $2,700, terms 1/10, n/30.
July 22 Sell CDs to customers for cash, $3,800, that had a cost of $2,100.
July 28 Return CDs to Music Supply and receive credit of $220.
July 30 Pay Music Supply in full.
. Assuming that CD City uses a perpetual inventory system, record the transactions.
Prepare the top section of the multiple-step income statement through gross profit for the month of July.
Explanation / Answer
Requirement 1
July 3 Debit Credit
Inventory 1,900
Accounts Payable 1,900
(Purchase inventory on account)
July 4
Inventory
Cash
120
120
(Pay freight-in)
July 9
Accounts Payable
400
Inventory
(Return inventory on account)
400
July 11
Accounts Payable
1,500
Inventory
15
Cash
(Pay on account less 1% discount)
1,485
($15 = $1,500 × 1%)
July 12
Accounts Receivable 5,000
Sales Revenue 5,000
(Sell inventory on account)
Cost of Goods Sold 2,600
Inventory 2,600
(Record cost of inventory sold)
July 15
Cash 5,000
Accounts Receivable 5,000
(Receive cash on account)
Requirement 1 (continued)
July 18 Debit Credit
Inventory 2,700
Accounts Payable 2,700
(Purchase inventory on account)
July 22
Cash 3,800
Sales Revenue 3,800
(Sell inventory for cash)
Cost of Goods Sold
Inventory
2,100
2,100
(Record cost of inventory sold)
July 28
Accounts Payable
220
Inventory
(Return inventory on account)
220
July 30
Accounts Payable
2,580
Cash
(Pay cash on account)
2,580
Requirement 2
CD City
Multiple-step Income Statement (partial) For the month of July
Net sales
$8,800
Cost of goods sold
4,700
Gross profit
$ 4,100
Inventory
Cash
120
120
(Pay freight-in)
July 9
Accounts Payable
400
Inventory
(Return inventory on account)
400
July 11
Accounts Payable
1,500
Inventory
15
Cash
(Pay on account less 1% discount)
1,485
($15 = $1,500 × 1%)
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