Flagler Company purchased $4,000 of merchandise on account.Flagler sold the merchandise to a customer for $7,000 cash.What is the increase in gross margin and the net change in cash flow from operating activities as a result of these transactions? (Consider the effects of both parts of this event.)

Question

Flagler Company purchased $4,000 of merchandise on account.Flagler sold the merchandise to a customer for $7,000 cash.What is the increase in gross margin and the net change in cash flow from operating activities as a result of these transactions? (Consider the effects of both parts of this event.)
Flagler Company purchased $4,000 of merchandise on account.Flagler sold the merchandise to a customer for $7,000 cash.What is the increase in gross margin and the net change in cash flow from operating activities as a result of these transactions? (Consider the effects of both parts of this event.) A) Option A B) Option B C) Option C D) Option D

Quizplus · Accepted Answer

Gross margin = Net sales ? Cost of goods sold
Gross margin = $7,000 ? $4,000 = $3,000
The sale of the inventory generates a cash inflow from operating activities of $7,000. Since it was purchased on account, the purchase of the inventory for $4,000 does not affect the statement of cash flows.

Flagler Company Purchased $4,000 of Merchandise on Account