Use the following financial information to find the entry you would make on an income statement for GROSS MARGIN for the year ended December 31, 2011: Gross Sales, $241,000; Sales Returns and Allowances, $7,500; Sales Discounts, $7,800; Merchandise Inventory, January 1, 2011, $45,200; Merchandise Inventory, December 31, 2011, $71,300; Net Purchases, $91,900; Freight In, $1950; Salaries, $97,000; Rent, $30,600; Utilities, $2,500; Insurance, $2,450; and Income Tax, $19,350.
A) $206,500
B) $157,950
C) $138,800
D) $107,700

Question

Quizplus · Accepted Answer

Gross Margin is calculated as Net Sales minus Cost of Goods Sold (COGS). Net Sales = Gross Sales - Sales Returns and Allowances - Sales Discounts = $241,000 - $7,500 - $7,800 = $225,700. COGS = Beginning Inventory + Net Purchases + Freight In - Ending Inventory = $45,200 + $91,900 + $1,950 - $71,300 = $67,750. Therefore, Gross Margin = Net Sales - COGS = $225,700 - $67,750 = $157,950.

Use the Following Financial Information to Find the Entry You