Question

Cycle Wholesaling sold merchandise on account, with terms n/60, to Sarah’s Cycles on February 1 for $1,250 (cost of goods sold of $725). On February 9, Sarah’s Cycles returned to Cycle Wholesaling one-quarter of the merchandise from February 1 (cost of goods returned was $195). Cycle Wholesaling uses a perpetual inventory system, and it allows returns only within 15 days of initial sale. Required: 1. to 3. Prepare the journal entry to record the sales, Goods returned on February 9 and Cash collected on March 2. 4. Calculate the gross profit percentage for the sale to Sarah’s Cycles.

Answer 1

Answer and Explanation:

Cycle Wholesaling

1. Journal entry

Dr Accounts receivable 1,250

Cr Sales revenue 1,250

Dr Cost of goods sold 725

Cr Inventory 725

2. Journal entry

Dr Cash 1,225

(98%×1250)

Dr Sales discounts 25

(2%×1250)

Cr Accounts receivable 1,250

3.

Dr Cash 1,250

Cr Account receivable 1,250

4.

Gross profit

percentage /Net sales *100

500/1,225*100

=40.81

Gross profit percentage 40.81 %

$1,250– 725– (2% × $1,250) =500

= $1,250 – (2% × $1,250) = 1,225