Question

Lopez Company reports unadjusted first-year merchandise sales of $128,000 and cost of merchandise sales of $32,000.

a. Compute gross profit using the unadjusted numbers above.

Gross profit is -    __________________

2nd part

The company expects future returns and allowances equal to 5% of sales and 5% of cost of sales. b-1&2. Prepare the year-end adjusting entry to record the sales expected to be refunded and cost side of sales returns and allowances. View transaction list Journal entry worksheet 12 Record the adjusting entry for expected sales returns (revenue side). Note: Enter debits before credits. Transaction General Journal Debit Credit Record entry Clear entry View general journal

Answer 1

A)

Gross profit = Sales - Cost of Goods Sold

= 128,000-32,000

= 96,000

B)

1	Sales returns and allowances	6,400
	Sales refund payable (128,000*5%)		6,400
2	Inventory (32,000*5%)	1,600
	Cost of Goods Sold		1,600

B-3)

Gross profit = 128,000 - 32,000 - 6,400 + 1,600

= 91,200

C) Liability

D) Asset