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Cycle Wholesaling sold merchandise on account, with terms n/60, to Sarah’s Cycles on February 1 for...

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Accounting

Cycle Wholesaling sold merchandise on account, with terms n/60,to Sarah’s Cycles on February 1 for $950 (cost of goods sold of$575). On February 9, Sarah’s Cycles returned to Cycle Wholesalingone-quarter of the merchandise from February 1 (cost of goodsreturned was $150). Cycle Wholesaling uses a perpetual inventorysystem, and it allows returns only within 15 days of initialsale.

Required:

  1. 1. to 3. Prepare the journal entry to recordthe sales, Goods returned on February 9 and Cash collected on March2.

  2. 4. Calculate the gross profit percentage forthe sale to Sarah’s Cycles.

Answer & Explanation Solved by verified expert
4.0 Ratings (784 Votes)

Solution 1 to 3:

Journal Entries - Cycle Wholesaling
S.No Date Particulars Debit Credit
1-a 01-Feb Accounts Receivable Dr $950.00
    To Sales $950.00
(To record sales)
1-b 01-Feb Cost of goods sold Dr $575.00
    To Merchandise Inventory $575.00
(To record cost of goods sold)
2-a 09-Feb Sales Returns and allownaces Dr ($950*1/4) $237.50
    To Accounts Receivable $237.50
(To record sales returns)
2-b 09-Feb Merchandise Inventory Dr $150.00
    To Cost of goods sold $150.00
(To reverse cost of goods returned)
3 02-Mar Cash Dr (950- 237.50) $712.50
    To Accounts Receivable $712.50
(To record cash collected)

Solution 4:

Net Sales = $950 - $237.5 = $712.50

Gross profit = Net Sales - cost of good sold = $712.50 - ($575-$150) = $712.50 - $425 = $287.50

Gross profit percentage = Gross profit / net sales = $287.50 / $712.50 = 40.35% (Rounded to 2 decimals)
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