Question

On March 19, Zone Company placed an order to purchase merchandise with payment terms of 2/10, n/30. The goods were listed by Danger (the seller) in the company’s catalog at a selling price of $3,300. The goods were carried on Danger’s balance sheet at a historical cost of $1,200. Zone obtained an 8% trade discount. Danger shipped the goods to Zone on March 26 with shipping terms of FOB Destination and $350 of prepaid freight. The goods arrived at Zone’s facility on April 3. Zone inspected the goods, returned 1/3* and paid the balance due to Danger on April 7.

*returned units had an original cost to Danger of $400

How much cash will Zone pay to Danger on April 7? (Round your final answers to the nearest $1).

A.$1,984

B.$2,156

C.$2,334

D.$2,327

E.None of the answer choices provided are correct.

2. How much Gross Profit will Danger report on the company's income statement as a result of this transaction? (Round your final answers to the nearest $1).

3. How much Sales Revenue will Danger report on the company's income statement as a result of this transaction? (Round your final answers to the nearest $1).

4. On what date should Zone Company make the initial entry to record the merchandise purchased at the negotiated price?

A.	None of the answer choices provided are correct.
	B.	April 3
	C.	March 19
	D.	March 26
	E.	April 7

Answer 1

1	Cash paid to Danger:
					$	$
	Selling price					3300
	Less:
	Trade discount		(3300*8%)		264
	Returns	(3300-264)*1/3			1012
	Sales discount		(3300-264-1012)*2%		40	1316
	Cash paid to danger					1984
	Answer is
	A. $ 1984
2	Gross profit:
						$	$
	Gross sales (net of trade discount)				(3300-264)		3036
	Less:
	Sales return				3036*(1/3)	1012
	Sales discount					40	1052
	Net sales						1984
	Less:Cost of goods sold (net of returns)				(1200-400)		800
	Gross profit						1184
3	Sales revenue=Gross sales (net of trade discount)=3300-264=$ 3036