Question

Best Equipment Sales (BESt) started Year 2 with $14,640 cash, $65,360 inventory, $50,000 common stock and $30,000 retained earnings. During Year 2, BESt experienced the following events:

• Feb 1, BESt recognized $59,000 of revenue on account from the sale of merchandise which had a cost of $45,000. Merchandise was sold with terms 1/10, n/30, FOB destination. Freight costs of $1,400 were paid in cash by the responsible party.
• Feb 3, BESt received returned merchandise from a customer with a list price of $3,000 and a cost of $2,000.
• Feb 5, BESt collected payments for half of the outstanding merchandise sold on account.
• Feb 10, BESt paid cash of $9,000 for selling and administrative expenses.
• Feb 20, BESt collected payments for the remaining outstanding merchandise sold on account.

What is the dollar value of the discount taken on Feb 5?

What is the value of Net Sales for Year 2?

What is the value of Cost of Goods Sold on the Year 2 Income Statement?

What is the value of Net Income on the Year 2 Income Statement?

Answer 1

Solution:

Dollar value of discount taken on Feb 5 [(59000-3000)/2*1%]	$              280
Net Sales [59000-3000]	$        56,000
Cost of goods sold [45000-2000]	$        43,000
Net Income	$          2,320

Working:

Sales [59000-3000]	56000
Less:
Cost of goods sold [45000-2000]	43000
Freight expense	1400
Selling and administrative expenses	9000
Sales Discount [56000*1%*1/2]	280
Net Income	2320