Question

In: Accounting

Hair World Inc. is a wholesaler of hair supplies. Hair World uses a perpetual inventory system....

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 $46,797). $ 87,200
b. Received merchandise returned by customers as unsatisfactory (but in perfect condition) for cash refund (original cost of merchandise $630 ). 1,050
c. Sold merchandise (costing $9,025 ) to a customer on account with terms n/60. 19,000
d. Collected half of the balance owed by the customer in (c). 9,500
e. Granted a partial allowance relating to credit sales the customer in (c) had not yet paid. 304

Required:

a. Compute Net Sales and Gross Profit for Hair World

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

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

d. Hair World is considering a contract to sell merchandise to a hair salon chain for $24,000. This merchandise will cost Hair World $14,320. What would be the increase (or decrease) to Hair World’s gross profit and gross profit percentage? (Round "Gross Profit Percentage" to 1 decimal place.)

Gross Profit    by ________
Gross Profit Percentage to ________%

Solutions

Expert Solution

Sold merchandise for cash 87,200
Sold merchandise on credit 19,000
less: Received merchandise returned by customers
1,050
less: Granted a partial allowance 304
Net sale 104,846
Net sale 104,846
less: cost of Sold merchandise for cash 46,797
less: cost of Sold merchandise on credit 9,025
Gross Profit 49,024

gross profit percentage = gross profit / sale x 100

= 49,024 / 104,846 x 100

= 46.75%

No. Account Debit Credit
a Cash 87,200
Sales Revenue 87,200
b Sales Return 1,050
Cash 1,050
c Account receivable 19,000
Sales revenue 19,000
d Cash 9,500
Account receivable 9,500
e Sales allowance 304
Account Receivable 304
Net sale 104,846
Add: sale to hair salon chain 24,000
less: cost of Sold merchandise for cash 46,797
less: cost of sale to hair salon chain 14,320
less: cost of Sold merchandise on credit 9,025
Gross Profit 58,704

gross profit percentage = gross profit / sale x 100

= 58,704 / 128,846 x 100

= 45.56%

hair world's gross profit is increased but gross profit percentage is decreased.


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