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    Midwest Distributing Company

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    Midwest Distributing Company completed these merchandising transactions in the month of April. At the beginning of April, the ledger of Midwest showed Cash of $9,000 and Common Stock of $9,000.
    2 Purchased merchandise on account from Kane Supply Co. $6,300, terms 2/10, n/30.
    4 Sold merchandise on account $5,000, terms 2/10, n/30. The cost of the merchandise sold was $3,700.
    5 Paid $200 freight on April 4 sale.
    6 Received credit from Kane Supply Co. for merchandise returned $300.
    11 Paid Kane Supply Co. in full, less discount.
    13 Received collections in full, less discounts, from customers billed on April 4.
    14 Purchased merchandise for cash $4,700
    16 Received refund from supplier for returned merchandise on cash purchase of April 14, $500.
    18 Purchased merchandise from Great Plains Distributors $4,500, terms 2/10, n/30.
    20 Paid freight on April 18 purchase $100.
    23 Sold merchandise for cash $8,300. The cost of the merchandise sold was $5,820.
    26 Purchased merchandise for cash $2,300.
    27 Paid Great Plains Distributors in full, less discount.
    29 Made refunds to cash customers for returned merchandise $180. The returned merchandise had a cost of $120.
    30 Sold merchandise on account $3,980, terms n/30. The cost of the merchandise sold was $2,500.

    Midwest Distributing Company's chart of accounts includes: Cash, Accounts Receivable, Merchandise Inventory, Accounts Payable, Common Stock, Sales, Sales Returns and Allowances, Sales Discounts, Cost of Goods Sold, and Freight-out.

    a. Journalize the transactions.
    b. Post the transactions to T accounts. Be sure to enter the beginning cash and common stock balances.
    c. Prepare the income statement through gross profit for the month of April 2007.
    d. Calculate the profit margin ratio and the gross profit rate. (Assume operating expenses were $2,050)

    Notes in the margin:
    c. Gross profit $5,100

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    Solution Preview

    Please see the attached file
    Date Account Titles Debit Credit
    Apr. 2 Merchandise Inventory 6,300
    Accounts Payable 6,300

    4 Accounts Receivable 5,000
    Sales 5,000

    Cost of Goods Sold 3,700
    Merchandise Inventory 3,700

    5 Freight-out 200
    Cash 200

    6 Accounts Payable 300
    Merchandise Inventory 300

    11 Accounts Payable ($6,300 - $300) 6,000
    Merchandise Inventory ($6,000 X 2%) 120
    Cash 5,880

    13 Cash 4,900
    Sales Discounts ($5,000 X 2%) 100
    Accounts Receivable 5,000

    14 Merchandise Inventory 4,700
    Cash 4,700

    16 Cash 500
    Merchandise Inventory 500

    18 Merchandise Inventory 4,500
    Accounts Payable ...

    Solution Summary

    The solution explains how to journalize and post the transactions, prepare and income statement till gross profit and calculate the profit margin and gross profit rate.