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

May 1 Purchased merchandise on account from Jerry’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 Jerry’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 Jerry’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 Cosmo 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 Costanza, Inc. $550, FOB destination, terms 2/10, n/30.

27 Paid Cosmo Distributors in full, less discount.

29 Made refunds to cash customers for defective merchandise $60. The returned merchandise had a scrap value of $10.

31 Sold merchandise on account $900, terms n/30. The cost of the merchandise sold was $560.

Newman Hardware’s chart of accounts includes the following: No. 101 Cash, No. 112 Accounts

Receivable, No. 120 Merchandise Inventory, No. 126 Supplies, No. 201 Accounts Payable, No. 301

Newman, Capital, No. 401 Sales, No. 412 Sales Returns and Allowances, No. 414 Sales Discounts,

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 2010.