Response to the following problem:
The following information relates to the Pike Corporation for the fiscal year ended December 31, 2016:
a. Merchandize inventory on hand at January 1 is $100,000.
b. During the year, the company purchased merchandize on credit from a single supplier for $200,000; terms 2/10, n30. Half of the purchases were paid within the discount period. The other half has not yet been paid.
c. The company paid $8,000 in freight charges on merchandize purchased, fob shipping point.
d. Damaged merchandize with an invoice price of $4,000 was returned to the supplier. A cash refund for the returned amount less discount was received. This merchandize was part of the purchase in transaction b that had been paid within the discount period.
e. Sold merchandize on credit to a customer for $20,000. (Cost to Pike: $14,000.)
f. An allowance of $2,750 was granted because merchandize sold in e was not satisfactory. (Cost: $2,000.)
g. A cheque for $2,750 was issued to the customer referred to in f.
h. The ending inventory was counted and valued at $290,000.
Assume Pike uses the perpetual inventory system.
Required:
1. Prepare journal entries for each of the transactions. Include a brief description for each entry. Show calculations for shrinkage.
2. Prepare a partial income statement including sales, cost of goods sold, and gross profit. Calculate gross profit percentage.
3. Prepare the necessary closing entries. Include general ledger account numbers and a brief description for each entry.