Question

Assume the perpetual inventory method is used.

1.The company purchased $13,400 of merchandise on account under terms 4/10, n/30
2.The company returned $2,900 of merchandise to the supplier before payment was made
3.The liability was paid within the discount period
4.All of the merchandise purchased was sold for $20,800 cash
The amount of gross margin from the four transactions is:
A. $6,400
B. $6,900
C. $7,000
D. $7,400

Answer 1

The gross margin from the four transactions is $7,936.

Step-by-step explanation:

The gross margin is the difference between the cost of goods sold and the total sales revenue. Using the perpetual inventory method, let's calculate the amount of gross margin from the four transactions:

1. Purchased $13,400 of merchandise on account, terms 4/10, n/30. With a 4% discount, the cost of goods sold is $13,400 - $536 = $12,864.
2. Returned $2,900 of merchandise to the supplier. The cost of goods sold is reduced by $2,900.
3. The liability was paid within the discount period. Since the payment was made within 10 days, there is no further impact on the cost of goods sold.
4. All of the merchandise purchased was sold for $20,800 cash. The cost of goods sold is $12,864.

The gross margin is calculated by subtracting the cost of goods sold from the total sales revenue. In this case, the gross margin is $20,800 - $12,864 = $7,936.