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

Quizplus · Accepted Answer

The increase in gross margin is calculated as the difference between the selling price and the cost of goods sold. In this case, Flagler sold the merchandise for $7,000 and purchased it for $4,000, resulting in a gross margin of $3,000.

The net change in cash flow from operating activities is calculated by adding the cash inflows and subtracting the cash outflows from operating activities. In this case, there is a cash inflow of $7,000 from the sale and no cash outflows, resulting in a net increase in cash flow from operating activities of $7,000.

Flagler Company Purchased $4,000 of Merchandise on Account