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

Can you also explain how to get the answers on the Jounral entries. Thank you

Answer 1

Answer-

1) Gross Sales = $500,000+$5,000 = $505,000

Sales Returns and Allowances = $3,000+$950 = $3,950

Net Sales = Gross Sales - Sales returns and Allowances

= $505,000-$3,950 = $501,050

Net cost of goods sold = $224,350+$3,000-$1,900 = $225,450

Gross Profit = Net Sales - Net Cost of Goods Sold

= $501,050 - $225,450 = $275,600

2) Gross Profit Percentage = Gross Profit/Net Sales

= $275,600/$501,050 = 55%

3) Journal Entries (Amounts in $)

No.	Account Titles and Explanations	Debit	Credit
a)	Cash	500,000
	Sales Revenue		500,000
	Cost of Goods Sold	224,350
	Merchandise Inventory		224,350
b)	Sales Returns and Allowances	3,000
	Cash		3,000
	Merchandise Inventory	1,900
	Cost of Goods Sold		1,900
c)	Accounts Receivable	5,000
	Sales Revenue		5,000
	Cost of Goods Sold	3,000
	Merchandise Inventory		3,000
d)	Cash	2,500
	Accounts Receivable		2,500
e)	Sales Returns and Allowances	950
	Accounts Receivable		950

4) Increase in Gross Profit = $20,000 - $16,000 = $4,000

New Gross Profit = $275,600+$4,000 = $279,600

New Net Sales = $501,050+$20,000 = $521,050

New Gross Profit = $279,600/$521,050 = 53.66%

Therefore there is a decrease in gross profit percentage of 1.34% (55% - 53.66%)

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