Boone Hardware Store completed the following merchandising transactions in the month of May. At the beginning of May, the ledger of Boone showed Cash of $5,000 and Owner’s Capital of $5,000.

May 1 Purchased merchandise on account from Adewale’s Wholesale Supply $4,200, terms 2/10, n/30.

2 Sold merchandise on account $2,100, terms 1/10, n/30. The cost of the merchandise sold was $1,300.

5 Received credit from Adewale’s Wholesale Supply for merchandise returned $300.

9 Received collections in full, less discounts, from customers billed on sales of $2,100 on

May 2.

10 Paid Adewale’s Wholesale Supply in full, less discount.

11 Purchased supplies for cash $400.

12 Purchased merchandise for cash $1,400.

15 Received refund for poor quality merchandise from supplier on cash purchase $150.

17 Purchased merchandise from Agbaje Distributors $1,300, FOB shipping point, terms 2/10, n/30.

19 Paid freight on May 17 purchase $130.

24 Sold merchandise for cash $3,200. The merchandise sold had a cost of $2,000.

25 Purchased merchandise from Somerhalder, Inc. $620, FOB destination, terms 2/10, n/30.

27 Paid Agbaje Distributors in full, less discount.

29 Made refunds to cash customers for defective merchandise $70. The returned merchandise had a fair value of $30.

31 Sold merchandise on account $1,000 terms n/30. The cost of the merchandise sold was $560.

Boone Hardware’s chart of accounts includes the following: No. 101 Cash, No. 112 Accounts Receivable, No. 120 Inventory, No. 126 Supplies, No. 201 Accounts Payable, No. 301 Owner’s Capital, No. 401 Sales Revenue, No. 412 Sales Returns and Allowances, No. 414 Sales Discounts, and No. 505 Cost of Goods Sold.

Instructions

(a) Journalize the transactions using a perpetual inventory system.

(b) Enter the beginning cash and capital balances and post the transactions. (Use J1 for the journal reference.)

(c) Prepare an income statement through gross profit for the month of May 2012.