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 $481,000, terms 2/10, n/30. This inventory originally cost Vogel $313,000.
• December 8 – Hatcher Corp. returned inventory to Vogel Corporation for a credit of $4,300. Vogel returned this inventory to inventory at its original cost of $2,798.
• 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

Requirement a:

Date	Account title and explanation	Debit	Credit
Dec 3	Accounts receivable	$481,000
	Sales revenue		$481,000
	[To record credit sales]
	Cost of goods sold	$313,000
	Inventory		$313,000
	[To record cost of goods sold]
Dec 8	Sales returns and allowance	$4,300
	Accounts receivable		$4,300
	[To record sales returns]
	Inventory	$2,798
	Cost of goods sold		$2,798
	[To record cost of sales returns]
Dec 12	Cash	$467,166
	Sales discount [476700 x 2%]	$9,534
	Accounts receivable [481000-4300]		$476,700
	[To record collections from customers]

Requirement b:

Income Statement (partial)
Sales revenue	$481,000
(Less): Sales returns and allowance	($4,300)
(Less): Sales discount [476700 x 2%]	($9,534)
Net sales	$467,166

Requirement c:

Net sales	$467,166
Cost of goods sold [313000-2798]	($310,202)
Gross profit	$156,964

Gross profit percentage = Gross margin ÷ Net sales = $156,964 ÷ $467,166 = 0.3360 or 33.60%