Question

Larry’s Building Supplies (LBS) is a local hardware store. LBS uses a perpetual inventory system. The following transactions (summarized) have been selected for analysis:

a. Sold merchandise for cash (cost of merchandise $313,350). $ 665,000

b. Received merchandise returned by customers as unsatisfactory (but in perfect condition) for cash refund (original cost of merchandise $4,100). 6,300

c. Sold merchandise (costing $8,280) to a customer on account with terms 2/10, n/30. 13,800

d. Collected half of the balance owed by the customer in (c) within the discount period. 6,762

e. Granted a partial allowance relating to credit sales that the customer in (c) had not yet paid. 2,050

Required:

1.

Compute Sales Revenue, Net Sales, and Gross Profit for LBS 2. Compute the gross profit percentage. (Round your answer to 1 decimal place.) 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. LBS is considering a contract to sell building supplies to a local home builder for $31,000. These materials will cost LBS $22,600. What would be the increase (or decrease) gross profit and gross profit percentage? (Round "Gross Profit Percentage" to 1 decimal place.)

Answer 1

Answer:
Requirement 1	Computaion of Sales Revenue, Net sales and Gross profit
	Sales Revenue		$                                        678,800.00	($665000+13800)
	Less:
	Sales return and allowance	$                                 8,350.00		($6300+2050)
	Sales discount	$                                    138.00	$                                            8,488.00	($13800/2-6762)
	Net Sales		$                                        670,312.00
Less:	Cost of goods sold		$                                        317,530.00	($313350-4100+8280)
	Gross Profit		$                                        352,782.00
Requirement 2	Gross profit percent	=Gross profit/Net sales *100
		=$352,782/670,312*100
		52.0%
Requirement 3	Journal Entry
Date	Account title and explanation	Debit	Credit
a	Cash	$                            665,000.00
	Sales		$                                        665,000.00
a	Cost of goods sold	$                            313,350.00
	Inventory		$                                        313,350.00
	(To record sale of goods )
b	Sales return and allowance	$                                 6,300.00
	Cash		$                                            6,300.00
b	Inventory	$                                 4,100.00
	Cost of goods sold		$                                            4,100.00
	(To record sales return)
c	Accounts receivable	$                              13,800.00
	Sales		$                                          13,800.00
c	Cost of goods sold	$                                 8,280.00
	Inventory		$                                            8,280.00
	(To record sale of goods )
d	Cash	$                                 6,762.00
	Sales Discount	$                                    138.00		(6900-6762)
	Accounts receivable		$                                            6,900.00	($13,800/2)
e	Sales return and allowance	$                                 2,050.00
	Accounts receivable		$                                            2,050.00
Requirment 4	Incremental Revenue	$                              31,000.00
Less:	Incremental Cost	$                              22,600.00
	Increase in Gross profit	$                                 8,400.00
	New Gross profit percent	51.5%
	Decrease in Gross profit percent	-0.5%	(51.5%-52%)