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 $8,797). $11,200 b. Received merchandise returned by customers as unsatisfactory (but in perfect condition), for cash refund (original cost of merchandise $60). 100 c. Sold merchandise (costing $2,375) to a customer, on account with terms 2/10, n/30. 5,000 d. Collected half of the balance owed by the customer in (c) within the discount period. 2,450 e. Granted a partial allowance relating to credit sales that the customer in (c) had not yet paid 80

1.

Compute Sales Revenue, Net Sales, and Gross Profit for Hair World. 2. Compute the gross profit percentage. 3. Prepare journal entries to record transactions (a)–(e). (If no entry is required for a transaction/event, select "No Journal Entry Required" in the first account field.) 4. Hair World is considering a contract to sell merchandise to a hair salon chain for $10,000. This merchandise will cost Hair World $7,600. What would be the increase (or decrease) to Hair World’s gross profit and gross profit percentage?

Answer 1

Answer 1
Sales revenue		$16,200.00
Less : Sales return and allowances		$180.00
Net Sales		$16,020.00
Less : Cost of goods sold		$11,112.00
Gross Profit		$4,908.00
Answer 2
Gross profit % = Gross profit / Net sales = $4908 / $16020 = 30.64%
Answer 3
Journal entries
Transaction	Account Titles	Debit	Credit
a	Cash	$11,200.00
	Sales		$11,200.00
	Cost of goods sold	$8,797.00
	Inventory		$8,797.00
b	Inventory	$60.00
	Cost of goods sold		$60.00
	Sales Return and allowances	$100.00
	Cash		$100.00
c	Accounts Receivables	$5,000.00
	Sales		$5,000.00
	Cost of goods sold	$2,375.00
	Inventory		$2,375.00
d	Cash	$2,450.00
	Sales discount	$50.00
	Accounts Receivables		$2,500.00
e	Sales Return and allowances	$80.00
	Accounts Receivables		$80.00
Answer 4
Increase in Gross profit of Hair world by = Sales - cost = $10000 - $7600 = $2400
Revised Gross profit % = Revised gross profit / Revised Net sales = [$4908 + $2400] / [$16020 + $10000] = 28.09%
Decrease in Gross profit % by = 30.64% - 28.09% = 2.55%