Question

Expert Computers was started in Year 1. The company experienced the following accounting events during its first year of operation 1. Started business when it acquired $40,000 cash from the issue of common stock. 2. Purchased merchandise with a list price of $32,000 on account, terms 2/10,n/30. 3. Paid off one-half of the accounts payable balance within the discount period, 4. Sold merchandise on account for $28,000. Credit terms were 120./30. The merchandise had cost Expert Computers $16.000 5. Collected cash from the account receivable within the discount period. 6. Paid $2,100 cash for operating expenses 7. Paid the balance due on accounts payable. The payment was not made within the discount period. Required a. Record the events in a horizontal statements model below. In the Cash Flows column, use the letters OA to designate operating activity, IA for investing activity, FA for financing activity, or NC for net change in cash. If the account is not affected by the event, leave the cell blank. The first event is recorded as an example, b. What is the amount of gross margin for the period? What is the net income for the period?

Answer 1

Requirement B:

Gross margin	$11,720
Net income	$9,620

Calculations:

Sales revenue	$28,000
(less): Sales discount [$28,000 x 1%]	($280)
Net sales		$27,720
(Less): Cost of goods sold		($16,000)
Gross margin		$11,720
(Less): Operating Expenses		($2,100)
Net income		$9,620