Question

Cycle Wholesaling sold merchandise on account, with terms n/60, to Sarah’s Cycles on February 1 for $1,200 (cost of goods sold of $700). On February 9, Sarah’s Cycles returned to Cycle Wholesaling one-quarter of the merchandise from February 1 (cost of goods returned was $190). 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: Please find explanation column for answers

Step-by-step explanation:

a)Journal To record sales of merchandise

Date Accounts titles Debit Credit

Feb 1 Account receivable 1200

Sales revenue 1200

Journal To record cost of goods sold

Cost of goods sold 700

Merchandise inventory 700

b)Journal To record sales return

Date Accounts titles Debit Credit

Feb 9 Sales return and allowance (1200/4) 300

Account receivable 300

To record cost of goods returned

Merchandise inventory $190

Cost of goods sold $190

c)Journal To record cash collection

Mar 2 Cash (1200 -300) $900

Account receivable $900

d) Gross Profit percentage = Net Profit/Net sales =Net sales - cost oof goods sold/net sales

Cost of goods sold = cost of goods sold - cost of goods retuened = 700- 190 = 510

Net profit/ net sales = 900- 510/ 900=490/900= 0.54 = 54%