Question

Hair World Inc. is a wholesaler of hair supplies. Hair World uses a perpetual inventory system. The following transactions (summarized) have been selected for analysis:

a.	Sold merchandise for cash (cost of merchandise $16,797).	$27,200
b.	Received merchandise returned by customers as unsatisfactory (but in perfect condition), for cash refund (original cost of merchandise $180).	300
c.	Sold merchandise (costing $3,325) to a customer, on account with terms 2/10, n/30.	7,000
d.	Collected half of the balance owed by the customer in (c) within the discount period.	3,430
e.	Granted a partial allowance relating to credit sales that the customer in (c) had not yet paid	112

1.	Compute Sales Revenue, Net Sales, and Gross Profit for Hair World.
	Sales Revenue
	Net Sales and Gross Profit

2.	Compute the gross profit percentage. (Round your answer to 1 decimal place.)

3.	Prepare journal entries to record transactions (a)–(e).

4. Hair World is considering a contract to sell merchandise to a hair salon chain for $12,000. This merchandise will cost Hair World $8,560. What would be the increase (or decrease) to Hair World’s gross profit and gross profit percentage?

Answer 1

1&2)

Sales Reveue	$ 34,200.00
Less: Sales Returns and Allowances	$     (412.00)
Net Sales	$ 33,788.00
Cost of Goods Sold	$ 19,942.00
Gross Profit	$ 13,846.00
Gross Profit percentage	40.98%

3)

Cash	$ 27,200.00
Sales Revenue		$ 27,200.00
Cost of Goods Sold	$ 16,797.00
Inventory		$ 16,797.00
Sales Returns and Allowances	$        300.00
Cash		$        300.00
Inventory	$        180.00
Cost of Goods Sold		$        180.00
Accounts Receivable	$    7,000.00
Sales Revenue		$    7,000.00
Cost of Goods Sold	$    3,325.00
Inventory		$    3,325.00
Cash	$    3,430.00
Sales Discounts	$          70.00
Accounts Receivable		$    3,500.00
Sales Returns and Allowances	$        112.00
Accounts Receivable		$        112.00

4)

Sales Revenue	$ 46,200.00
Less: Sales Returns and Allowances	$     (412.00)
Net Sales	$ 45,788.00
Cost of Goods Sold	$ 28,502.00
Gross Profit	$ 17,286.00
Gross Profit percentage	37.75%

Gross Profit Increased from $ 13,846 to $17,286 and Gross Profit % decreased from 40.38% to 37.75%