Question

Two different companies, Vogel and Hatcher, entered into the following inventory transactions during December. Both companies use a perpetual inventory system.

• December 3 – Vogel Corporation sold inventory on account to Hatcher Corp. for $490,000, terms 2/10, n/30. This inventory originally cost Vogel $300,000.
• December 8 – Hatcher Corp. returned inventory to Vogel Corporation for a credit of $3,300. Vogel returned this inventory to inventory at its original cost of $2,020.
• December 12 – Hatcher Corp. paid Vogel Corporation for the amount owed.

Required:

1. Prepare the journal entries to record these transactions on the books of Vogel Corporation.
2. What is the amount of net sales to be reported on Vogel Corporation’s income statement?
3. What is the Vogel Corporation’s gross profit percentage?

Answer 1

a. Journal Entries

Date	Particular	Debit	Credit
December 3	Accounts receivable	$490,000
	Sales		$490,000
December 3	Cost of good sold	$300,000
	Inventory		$300,000
December 8	Sales return and allowance	$3,300
	Accounts receivable		$3,200
December 8	Inventory	$2,020
	Cost of good sold		$2,020
December 12	Cash	$476,966
	Sales discount ($486,700 * 2%)	$9,734
	Accounts receivable ($490,000 - $3,300)		$486,700

b.

	Particular	Amount
	Sales	$490,000
Less	Sales return and allowance	($3,300)
Less	Sales discount	$9,734
	Net Sales	$476,966
Less	Cost of good sold ($300,000 - $2,020)	($297,980)
	Gross profit	$178,986

c. Gross profit percentage

	Particular	Amount
a	Gross profit	$178,986
b	Net sales	$486,700
c (a/b)	Gross profit percentage	36.77%