Question

Required Information [The following information applies to the questions displayed below.) Hair World Inc. is a wholesaler of hair supplies. Hair World uses a perpetual inventory system. The following transactions (summarized) have been selected for analysis: $63,200 a. Sold merchandise for cash (cost of merchandise $34,797). b. Received merchandise returned by customers as unsatisfactory (but in perfect condition) for cash refund (original cost of merchandise $450 ). c. Sold merchandise (costing $6,175 ) to a customer on account with terms n/60. 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. 750 13,000 6,500 208 Required: 1. Compute Net Sales and Gross Profit for Hair World. Net Sales Gross Profit

Answer 1

Solution Required 1: Computation of net sales Cash sales Sales on account Less: Sales Returns Less: Sales discounts Net sales $63,200 $13,000 ($750) ($208) $75,242 Computation of Cost of Goods sold Cost of Goods sold (gross) ($34,797 + $6,175) Less: Cost of merchandise returned Cost of Goods sold (net) $40,972 ($450) $40,522 Computation of Gross profit Net sales Cost of goods sold Gross profit $75,242 ($40,522) $34,720 Net sales Gross profit $75,242 $34,720 Required 2: Gross profit Percentage = Gross profit / net sales = $34,720 / $ 75,242 = 46.1% Gross profit percentage 46.1%

Required 3: Transaction a(1) General Journal Cash Sales Revenue Debit 63,200 Credit 63,200 Transaction | Debit Credit a(2) General Journal Cost of Goods sold Merchandise Inventory 34,797 34,797 | Transaction b(1) Credit General Journal Sales returns and allowances Cash Debit 7501 750 Transaction (2) Credit General Journal Merchandise Inventory | Cost of Goods sold Debit 450 450 | Credit Transaction c(1) | General Journal Accounts receivable Sales Revenue Debit 13,000 13,000 | Credit Transaction (2) General Journal Cost of Goods sold Merchandise Inventory Debit 6,175 6 1 ,175 Transaction Credit General Journal Cash Accounts receivable Debit 6,500 6,500 Credit Transaction e General Journal Sales returns and allowances Accounts receivable Debit 208) 208