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

May 1 Purchased merchandise on account from Depot Wholesale Supply for

$6,000, terms 2/10, n/30.

2 Sold merchandise on account for $4,500, terms 2/10, n/30. The cost of the merchandise sold was $3,000.

5 Received credit from Depot Wholesale Supply for merchandise returned

$200.

9 Received collections in full, less discounts, from customers billed on sales of $4,500 on May 2.

10 Paid Depot Wholesale Supply in full, less discount.

11 Purchased supplies for cash $900.

12 Purchased merchandise for cash $2,400.

15 Received refund for poor-quality merchandise from supplier on cash purchase $230.

17. Purchased merchandise from Harlow Distributors for $1,900, terms 2/10, n/30.

19 Paid freight on May 17 purchase $250.

24 Sold merchandise for cash $6,200. The cost of the merchandise sold was

$4,340.

25 Purchased merchandise from Horicon Inc. for $1,000, terms 2/10, n/30.

27. Paid Harlow Distributors in full, less discount.

29 Made refunds to cash customers for defective merchandise $100. The returned merchandise had cost $70.

31 Sold merchandise on account for $1,600, terms n/30. The cost of the merchandise sold was $1,120.

Hummingbird Hardware’s chart of accounts includes Cash, Accounts Receivable, Merchandise Inventory, Supplies, Accounts Payable, Common Stock, Sales, Sales Returns and Allowances, Sales Discounts, and Cost of Goods Sold.

Instructions

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

(b) Post the transactions to T accounts. Be sure to enter the beginning cash and common stock balances.

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

(d) Calculate the profit margin ratio and the gross profit rate. (Assume operating expenses were $1,500.)