Chapter 5, Problem 5.1BP

(a)

To determine

Perpetual Inventory System refers to the inventory system that maintains the detailed records of every inventory transactions related to purchases and sales on a continuous basis. It shows the exact on-hand-inventory at any point of time.

Journal entry: Journal is the book of original entry. Journal consists of the day-to-day financial transactions in a chronological order. The journal has two aspects; they are debit aspect and the credit aspect.

The following are the rules of debit and credit:

1. 1. Increase in assets and expenses accounts are debited. Decrease in liabilities and stockholders’ equity accounts are debited.
2. 2. Increase in liabilities, revenues, and stockholders’ equity accounts are credited. Decreases in all asset accounts are credited.

To Record: The journal entries in books of KD Company using perpetual inventory system during April.

(b)

To determine

T Accounts: T- accounts are prepared for all the business transactions. First, journal entries are passed and then transferred to the respective ledger accounts where, they are recorded and summarized in either side of the ‘T’ format. It is divided into two parts by a vertical line, that is, the left side and the right side. The left side of the T-account is known as the debit side and the right side of the T-account is known as the credit side. The account name appears on the top of the T-account.

To Post: The above transactions to T-accounts of KD Company.

(c)

To determine

To Prepare: The income statement through gross profit of KD Company for the month ended April 2014.

(d)

To determine

The gross profit rate and profit margin of KD Company for the month of April 2014.