Sanchez Company engaged in the following transactions during Year 1: 1)Started the business by issuing $13,900 of common stock for cash.2)The company paid cash to purchase $8,300 of inventory.3)The company sold inventory that cost $5,700 for $11,900 cash.4)Operating expenses incurred and paid during the year, $5,200.Sanchez Company engaged in the following transactions during Year 2:1)The company paid cash to purchase $12,200 of inventory.2)The company sold inventory that cost $9,900 for $18,500 cash.3)Operating expenses incurred and paid during the year, $6,200.Note: Sanchez uses the perpetual inventory system. What is Sanchez's gross margin for Year 2?

Question

Quizplus · Accepted Answer

To calculate gross margin, we need to subtract cost of goods sold (COGS) from net sales.
Net sales = $18,500
COGS = $9,900 (cost of goods sold for the inventory sold) + $12,200 (cost of goods purchased during the year) - $8,300 (cost of inventory purchased in Year 1) = $13,800
Net sales - COGS = $18,500 - $13,800 = $4,700
Therefore, Sanchez's gross margin for Year 2 is $4,700 or $8,600 (if we include the gross margin from Year 1). Since the question only asks for Year 2, the correct answer is D) $8,600.

Sanchez Company Engaged in the Following Transactions During Year 1