Kitco Inc. is in the wholesale business that buys linseed oil which is used in the paint manufacturing business to add gloss to the paint. The company buys linseed oil from many crushing plants throughout the United States and stores it in a tank farm with a total capacity of 1.5 million gallons at their headquarters. It sells linseed oil to paint manufactures and also to big-box hardware stores. At the beginning of October, the company had in storage 600,000 gallons of linseed oil in its storage tanks with an average cost of five dollars per gallon. During the month of October, the company had the following transactions:

10/3. The company sold 475,000 gallons to the paint manufacturing company with a sales price of $7.50 per gallon with terms of net 30 days.

10/5. Purchased 700,000 gallons of linseed oil with terms of net 30 days at a cost of $3,500,000.

10/11. Purchased 300,000 gallons of linseed oil with terms of net 30 days at a cost of $1,500,000.

10/15. Return 50,000 gallons of tainted linseed oil to the crushing plant it purchased the linseed oil from for $5.00 a gallon. They received a credit memo from the company they purchased linseed oil from on the same date.

10/26. The company sold 500,000 gallons to paint manufacturing company at a sales price of $7.75 per gallon with terms of net 30 days.

10/28. Had 10,000 gallons of linseed oil return to from the sale made on 10/3 for not meeting the specifications. The company issued a credit memo in amount of $50,000 and issued a check for the same amount.

10/29. Sold 20,000 gallons of linseed oil to a big-box chain hardware store $8 per gallon with terms of net 30 days.

10/31. Took a reading of the storage tank farms linseed oil tanks and found that there is 3,000 gallons of linseed oil that had been inadvertently spilled while filling paint cans.

Required:

1. From the information above produce a classified income statement using the periodic inventory system down to the Gross Profit line.

2. Assume that all of the transactions above have be journal correctly, Make all of the required a adjusting and closing journal entries to bring the accounting system up to date.