Question

1) The company purchased $12,500 of merchandise on account under terms 2/10, n/30. 2) The company returned $1,200 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 $18,800 cash. What is the gross margin that results from these four transactions

Answer 1

$7,726

Step-by-step explanation:

The return outward of $1,200 will be used to reduce the account payable of $12,500 since it has been returned. We therefore have:

Net account payable = $12,500 - $1,200 = $11,300

Also, the terms 2/10, n/30 implies that the company is entitled to a 2% discount since it paid before the 10-day discount period. This 2% discount will be used to reduce the net account payable to obtain cost of goods sold as follows:

Cost of goods sold = $11,300 – ($11,300 × 2%) = $11,300 – 226 = $11,074

We can now calculate the gross margin as follows:

Gross margin = Sales revenue – Cost of goods sold = $18,800 – 11,074 = $7,726

Therefore, the gross margin from the four transactions is $7,726.