Question

Assuming that all customer returns of merchandise are honored with a full cash reimbursement or full credit on account regardless of the condition of the returned merchandise, a customer return of used and worthless merchandise previously sold at a profit will reduce the merchandiser's net income by how much in relation to the original sales price, gross margin and cost of goods sold?

Answer 1

A customer return of used and worthless merchandise will reduce the merchandiser's net income by the original sales price, gross margin, and cost of goods sold.

Step-by-step explanation:

When a customer returns used and worthless merchandise, it will reduce the merchandiser's net income by the amount of the original sales price, the gross margin, and the cost of goods sold. This is because the merchandise sold at a profit will no longer contribute to the revenue, gross margin, and cost of goods sold. The cash reimbursement or credit on account given to the customer will offset the initial profit made from the sale.