Question

Problem 2

Cindy’s Appliance Store uses a perpetual inventory system, and ending inventory at April 30 was $25,000. Following is a listing of transactions for Cindy’s for the month of May. Cindy’s purchased refrigerators from GE on account at a total cost of $500,000 with terms 2/10, n/30. Cindy’s also paid freight of $800 on the refrigerators purchased from GE. Several of the refrigerators had to be returned to GE, and GE issued a credit to Cindy’s for 10 refrigerators that cost $10,000. Cindy’s then paid the amount due to GE within 7 days of the invoice date. Lastly, Cindy’s sold refrigerators on account that had cost $250,000 for $375,000 to Marc’s Pizza Palace.  

Required: Answer the following questions for Cindy’s Appliance Store.

1. What is the balance in Cindy’s inventory account at the end of May?

2. What is Cindy’s gross margin for the month of May?   

Answer 1

	ANSWER TO QUESTION NO : (A)
	CINDY'S APPLIANCES
	DR	INVENTORY A/C	CR
	DATE	PARTICULARS	AMOUNT	DATE	PARTICULARS	AMOUNT
	1-May	BALANCE C/D	$    25,000.00		ACCOUNTS PAYABLE (RETURN)	$    10,000.00
					ACCOUNTS PAYABLE (DISCOUNT)	$      9,800.00
		ACCOUNTS PAYABLE	$ 500,000.00		($500000-$10000)*2%
		CASH	$          800.00
					COST OF GOODS SOLD	$ 250,000.00
					BALANCE C/D	$ 256,000.00
			$ 525,800.00			$ 525,800.00

	ANSWER TO QUESTION NO : (B)
	CINDY'S APPLIANCES
	COMPUTATION OF GROSS MARGIN FOR THE MONTH OF MAY
	PARTICULARS	AMOUNT
	SALES	$                   375,000.00
	LESS:
	COST OF GOODS SOLD	$                 (250,000.00)
	GROSS PROFIT	$                   125,000.00
	MARGIN = GROSS PROFIT / SALES	33%
	($125000/$375000)