Question

PB6-3 Recording Sales and Purchases with Discounts and Returns and Analyzing Gross Profit Percentage [LO 6-4, LO 6-5) [The following information applies to the questions displayed below.] 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: $500,000 a. Sold merchandise for cash (cost of merchandise $224,350). b. Received merchandise returned by customers as unsatisfactory (but in perfect condition) for cash refund (original cost of merchandise $1,900). c. Sold merchandise (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. 3,000 5,000 2,500 950 PB6-3 Part 1 Required: 1. Compute Net Sales and Gross Profit for LBS. Net Sales Gross Profit

a)Record the cash sales of $500,000.

b)Record the cost of goods sold of $224,350.

c)Record the return by a customer of unsatisfactory merchandise that was in perfect condition. A cash refund of $3,000 was given to the customer.

d)Record the merchandise returned by the customer back into inventory. The original cost of the merchandise was $1,900.

e)Record the sales on account of $5,000 on terms n/30.

f)Record the cost of goods sold of $3,000.

g)Record the collection of half of the balance of $2,500 owed by the customer within the discount period

h)Record the allowance of $950 granted to the customer.

Answer 1

Larry's Building Supplies (LBS) Journal entries Date Account a Cash Sales Credit Debit $ 500,000 $ 500,000 b $ 224,350 Cost of goods sold Inventory $ 224,350 $ 3,000 C Sales Returns and Allowances Cash $ 3,000 d $ 1,900 Inventory Cost of goods sold $ 1,900 e $ 5,000 Accounts Receivable Sales $ 5,000 $ 3,000 Cost of goods sold Inventory $ 3,000 g $ 2,500 Cash Accounts Receivable $ 2,500 h $ 950 Sales Returns and Allowances Accounts Receivable $ 950

Larry's Building Supplies (LBS) Income Statement Sales Less Sales Returns and Allowances Net Sales Less Cost of goods sold Gross Profit 505,000 3,950 501,050 225,450 275,600 Req 1 Net Sales Gross Profit 501,050 275,600 Reg 2 Gross Profit Percentage Gross Profit/ Net Sales =275,600/501,050 55.0% Gross Profit Percentage

WORKINGS

Credit Date Date Credit Larry's Building Supplies (LBS) T Accounts Date Debit Date Cash $500,000 $ 2,500 Debit Date Inventory $ 1,900 a $ Debit Date Credit Accounts Receivable $5,000 g $ 2,500 $ 950 3,000 $ 224,350 $ 3,000 Bal. Bal. Bal. $499,500 Sales $ 1,550 Sales Returns and Allowances $ 3,000 $ 950 $(225,450) Cost of goods sold $ 224,350 C $ 3,000 $ 1,900 $ 500,000 $ 5,000 C h Bal. $505,000 Bal. $ 3,950 Bal. $ 225,450