Question

Two different companies, Vogel and Hatcher, entered into the following inventory transactions during December. Both companies use a perpetual inventory system.

• December 3 – Vogel Corporation sold inventory on account to Hatcher Corp. for $240,000, terms 2/10, n/30. This inventory originally cost Vogel $160,000.
• December 8 – Hatcher Corp. returned inventory to Vogel Corporation for a credit of $15,000. Vogel returned this inventory to inventory at its original cost of $10,000.
• December 12 – Hatcher Corp. paid Vogel Corporation for the amount owed.

Required:

1. Prepare the journal entries to record these transactions on the books of Vogel Corporation.
2. What is the amount of net sales to be reported on Vogel Corporation’s income statement?
3. What is the Vogel Corporation’s gross profit percentage?

Answer 1

Journal entries

Date	account and explanation	debit	credit
Dec 3	Account receivable	240000
	Sales revenue		240000
	(To record sales)
	Cost of goods sold	160000
	Merchandise inventory		160000
	(To record cost of goods sold)
Dec 8	Sales return and allowance	15000
	Account receivable		15000
	(To record sales return)
	Merchandise inventory	10000
	Cost of goods sold		10000
	(To record cost of goods returned)
Dec 12	Cash (225000*98%)	220500
	Sales discount	4500
	Account receivable		250000
	(To record cash received)

b) Net sales = 240000-15000-4500 = $220500

c) Gross profit = 220500-150000 = 70500

Gross profit percentage = 70500/220500 = 31.97%