Question

Required information PB6-3 Recording Sales and Purchases with Discounts and Returns and Analyzing Gross Profit Percentage (LO 6-4, LO 6-5) [The following information applies to the questions displayed below.] Larry's Building Supplies (LBS) is a local hardware store. LBS uses a perpetual inventory system. The following transactions (summarized) have been selected for analysis: $500,000 erchandise for cash (cost of merchandise $ 224,350). b. Received merchandise returned by customers as unsatisfactory (but in perfect condition) for cash refund (original cost of merchandise $1,900). c. Sold merchandise (costing $3,000) to a customer on account with terms n/30. d. Collected half of the balance owed by the customer in (c). e. Granted a partial allowance relating to credit sales the customer in (c) had not yet paid. 3,000 5,000 2,500 950 PB6-3 Part 4

Answer 1

4
Gross Profit	increases by	4000
Gross Profit Percentage	decrease to	53.7%
Workings:
Gross Profit increase	4000	=20000-16000
Without special contract:
Actual gross sales	505000	=500000+5000
Less: Returns and allowances	3950	=3000+950
Net sales	501050
Net sales	501050
Less: Cost of goods sold	225450	=224350+3000-1900
Gross Profit	275600
Gross Profit Percentage	55.0%	=275600/501050
With special contract:
Net sales	521050	=501050+20000
Less: Cost of goods sold	241450	=225450+16000
Gross Profit	279600
Gross Profit Percentage	53.7%	=279600/521050