Question

1. The service company purchased merchandise on April 16, xxx1 for $75,000, credit terms 3/10, n/30 and the shipping costs for $2,300 FOB Destination. The company paid the account on April 24, then the inventory was sold for $93,750. The cost of goods sold is:

a) $75,000 + $2,300 - $2,250 = $75,050

b) $75,000 + $2,300 = $77,300

c) $75,000 - $2,250 = $72,750

2. The service company purchased merchandise on April 16, xxx1 for $75,000, credit terms 3/10, n/30 and the shipping costs for $2,300 FOB Destination. The company paid the account on April 24, then the inventory was sold for $93,750. The gross margin is:

a) $93,750 - $72,750 = $21,000

b) $93,750 - $77,300 = $16,450

c) $93,750 - $75,050 = $18,70

Answer 1

Part 1)

The correct answer is A) $ 75000 + $ 2300- $ 2250 = $ 75050

Explanation

Cost of merchandise included the freight expense paid for it and any discount received against purchases are netted with purchases, so cash discount has been substracted to arrive at net purchases.

Part 2)

The correct answer is a) $ 93750 - $ 72750 = $ 21000

Explanation

In order to arrive at gross profit cost of goods sold are substracted from sales.

Gross Profit = sales - cost of goods sold.