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Exercise 4-2A Effect of inventory transactions on journals, ledgers, and financial statements: Perpetual system LO 4-1 Dan Watson started a small merchandising business in Year 1. The business experienced the following events during its first year of operation. Assume that Watson uses the perpetual inventory system. Acquired $27,500 cash from the issue of common stock.Purchased inventory for $22,000 cash.Sold inventory costing $15,600 for $30,500 cash. Required. Record the events in general journal format.b. Post the entries to T-accounts.c. Determine the amount of gross margin.d. What is the amount of net cash flow from operating activities for Year 1

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Answer:

Explanation:

a. General Journal    

1

Dr Cash $27,500

Cr Common Stock  $27,500

2

Dr Merchandise Inventory $22,000

Cr Cash  $22,000  

3

Dr Cash $ 30,500

Sales  $ 30,500

4

Dr Cost of goods sold $ 15,600

Merchandise Inventory  $ 15,600

c)

Income Statement    

For the year ended December 31,Year 1    

Sales $ 30,500

Cost of good sold $ 15,600

Gross Margin $ 14,900

d)

Cash Flow from Operating Activities:    

Purchase of Inventory ($22,000)    

Cash Sales made $ 30,500

Cash Flow from Operating Activities $8,500