Question

Larry's Building Supplies (LBS) is a local hardware store. LBS uses a perpetual inventory system. The following transactions (summarized) have been selected for analysis: a. Sold merchandi se for cash (cost of merchandi se $224, 350). b. Received merchandi se returned by customers as unsatisfactory (but in perfect condition) for cash refund (original cost of merchandise $1, 900). Sold merchandi se (costing $3, 000) to a customer on account with terms n/30. d. Collected half of the balance owed by the customer in (c). e. Granted a partial allowance relating to credit sales the customer in (c) had not yet paid. $500, 000 3, 000 5, 000 2, 500 950 c. PB6-3 Part 1 Required: 1. Compute Net Sales and Gross Profit for LBS. Net Sales Gross Profit

Answer 1

1]	Sales = 500000+5000 =	$        5,05,000
	-Returns and allowances = 3000+950 =	$             3,950
	Net sales	$        5,01,050
	COGS = 224350-1900 =	$        2,22,450
	Gross profit = 501050-22450 =	$        2,78,600
2]	Gross profit percentage = Gross profit/Net sales = 278600/501050 =	55.6%
3]	Sales	$              3,000
	Cash		$            3,000
	[To record payment of cash for return of goods]
	Merchandise inventory	$              1,900
	COGS		$            1,900
	[To record cost of goods returned]
	Cash	$              2,500
	Accounts receivable		$            2,500
	[To record cash received]
	Note:
	No discount rate is specified; only n/30 is mentioned.
	Sales returns and allowances	$                  950
	Accounts receivable		$                950
	[To record returns and allowances]
4]	Net sales = 501050+20000 =	$        5,21,050
	COGS = 222450+16000 =	$        2,38,450
	=Gross profit	$        2,82,600
	Gross profit percentage = 282600/521050 =	54.24%