At the beginning of July, CD City has a balance in inventory of $3,400. The following transactions occur during the month of July. July3Purchase CDs on account from Wholesale Music for $2,300, terms 1/10, n/30.
July4Pay cash for freight charges related to the July 3 purchase from Wholesale Music, $110.
July9Return incorrectly ordered CDs to Wholesale Music and receive credit, $200.
July11Pay Wholesale Music in full.
July12Sell CDs to customers on account, $5,800, that had a cost of $3,000.
July15Receive full payment from customers related to the sale on July 12.
July18Purchase CDs on account from Music Supply for $3,100, terms 1/10, n/30.
July22Sell CDs to customers for cash, $4,200, that had a cost of $2,500.
July28Return CDs to Music Supply and receive credit of $300.
July30Pay Music Supply in full.
Required:
1. Assuming that CD City uses a perpetual inventory system, record the transactions.2. Prepare the top section of the multiple-step income statement through gross profit for the month of July.

Journal Entries

July 3

CDs Inventory $2,300 (debit)

Trade Payable - Wholesale Music $2,300 (credit)

July 4

Freight Charges $110 (debit)

Cash $110 (credit)

July 9

Trade Payable - Wholesale Music $200 (debit)

CDs Inventory $200 (credit)

July 11

J1

Trade Payable - Wholesale Music $2,079 (debit)

Cash $2,079 (credit)

J2

Trade Payable - Wholesale Music $21 (debit)

Discount Received $21 (credit)

July 12

J1

Trade Receivable $5,800 (debit)

Revenue $5,800 (credit)

J2

Cost of Goods Sold $3,000 (debit)

Inventory CDs $3,000 (credit)

July 15

Cash $5,800 (debit)

Trade Receivable $5,800 (credit)

July 18

Inventory CDs $3,100 (debit)

Trade Payable - Music Supply $3,100 (credit)

July 22

J1

Cash $4,200 (debit)

Revenue $4,200 (credit)

J2

Cost of Goods Sold $2,500 (debit)

Inventory CDs $2,500 (credit)

July 28

Trade Payable - Music Supply $300 (debit)

CDs Inventory $300 (credit)

July 30

J1

Trade Payable - Wholesale Music $2,772 (debit)

Cash $2,772 (credit)

J2

Trade Payable - Wholesale Music $28 (debit)

Discount Received $28 (credit)

multiple-step income statement

Revenue ($4,200+$5,800)                                                 $10,000

Less Cost of Goods Sold :

Opening Stock                                             $3,400

Add Purchases ( $2,300 + $3,100)             $5,400

Less Returns Outwards ( $200 +  $300)     ($500)

Add Freight Charges                                       $110

                                                                     $8,190

Less Closing Stock (Balancing figure)         ($190)

Cost of Goods Sold ($3,000+ $2,500)                               $8,000

Gross Profit                                                                           $2,000

Explanation:

The Income Statement is Prepared on Accrual Basis of Accounting meaning that Revenues and Expenses are recorded when they occur or incur not when cash is paid or received.

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