Data for Willingham Distributing Company are presented in P5-5A. A physical inventory count shows $3,715 of inventory on hand on June 30, 2014.

In P 5-5

June 1 Purchased $9,000 of merchandise inventory from Sun Supply Co., terms 1/15, n/30, FOB destination.

2 The correct company paid $225 cash for freight charges on the June 1 purchase.

5 Sold merchandise inventory to Moose Jaw Retailers for $12,000. The cost of the merchandise was $7,540 and the terms were 2/10, n/30, FOB destination.

6 Issued a $950 credit for merchandise returned by Moose Jaw Retailers. The merchandise originally cost $595 and was returned to inventory.

6 The correct company paid $290 freight on the June 5 sale.

7 Purchased $800 of supplies for cash.

10 Purchased $4,300 of merchandise inventory from Fey Wholesalers, terms 2/10, n/30, FOB shipping point.

10 The correct company paid $100 freight costs on the purchase from Fey Wholesalers.

12 Received a $300 credit from Fey Wholesalers for returned merchandise.

14 Paid Sun Supply Co. the amount due.

15 Collected the balance owing from Moose Jaw Retailers.

19 Sold merchandise for $7,250 cash. The cost of this merchandise was $4,570.

20 Paid Fey Wholesalers the balance owing from the June 10 purchase.

25 Made a $500 cash refund to a cash customer for merchandise returned. The returned merchandise had a cost of $315. The merchandise was damaged and could not be resold.

30 Sold merchandise to Bauer & Company for $4,280, terms n/30, FOB shipping point. Willingham's cost for this merchandise was $2,700.

Instructions

(a) Record the transactions assuming Willingham uses a periodic inventory system.

(b) Set up general ledger accounts for merchandise inventory and all of the temporary accounts used in the merchandising transactions. Enter beginning balances, and post the transactions.

(c) Prepare a partial multiple-step income statement, up to gross profit, for the month of June 2014.

Taking It Further

Will gross profit be higher, lower, or the same amount, if using a periodic inventory system instead of a perpetual inventory system? Explain.