At the beginning of September 2017, Stojanovic Distributing Company's ledger showed Cash $12,500, Merchandise Inventory $7,500, and

Question:

At the beginning of September 2017, Stojanovic Distributing Company's ledger showed Cash $12,500, Merchandise Inventory $7,500, and D. Stojanovic, Capital, $20,000. During the month of September, the company had the following selected transactions:

Sept. 2Purchased $13,500 of merchandise inventory from Moon Supply Co., terms 1/15, n/30, FOB destination.

4 The correct company paid $325 cash for freight charges on the September 2 purchase.

5 Sold merchandise inventory to Brandon Retailers for $18,000. The cost of the merchandise was $11,310 and the terms were 2/10, n/30, FOB destination.

6 Issued a $1,400 credit for merchandise returned by Brandon Retailers. The merchandise originally cost $890 and was returned to inventory.

6 The correct company paid $420 freight on the September 5 sale.

8 Purchased $900 of supplies for cash.

10 Purchased $6,450 of merchandise inventory from Tina Wholesalers, terms 2/10, n/30, FOB shipping point.

10 The correct company paid $150 freight costs on the purchase from Tina Wholesalers.

12 Received a $450 credit from Tina Wholesalers for returned merchandise.

15 Paid Moon Supply Co. the amount due.

15 Collected the balance owing from Brandon Retailers.

19 Sold merchandise for $10,875 cash. The cost of this merchandise was $6,855.

20 Paid Tina Wholesalers the balance owing from the September 10 purchase.

25 Made a $750 cash refund to a cash customer for merchandise returned. The returned merchandise had a cost of $470. The merchandise was damaged and could not be resold.

30 Sold merchandise to Dragen & Company for $6,420, terms n/30, FOB shipping point. Stojanovic's cost for this merchandise was $4,050.

Instructions

(a) Record the transactions assuming Stojanovic 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, post the transactions and calculate the balances for each account.

Taking It Further

Assume that Stojanovic 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 September?