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 previously sold at a profit will reduce the merchandiser's net income by the original sales price, gross margin, and cost of goods sold.

Step-by-step explanation:

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

When a customer returns merchandise, the merchandiser must reimburse the customer with a full cash reimbursement or full credit on account, regardless of the condition of the returned merchandise. This means that the merchandiser will not only lose the original sales price but also the gross margin, which is the difference between the sales price and the cost of goods sold.

For example, if a customer returns a product that was sold for $50 with a gross margin of $20 (sales price - cost of goods sold), the merchandiser's net income will be reduced by $50, the original sales price, as well as by $20, the gross margin.