Assume the perpetual inventory system is used.1)Green Company purchased merchandise inventory that cost $17,100 under terms of 4/10, n/30 and FOB shipping point.2)Green Company paid freight cost of $710 to have the merchandise delivered.3)Payment was made to the supplier on the inventory within 10 days.4)All of the merchandise was sold to customers for $25,700 cash and delivered under terms FOB destination with freight cost amounting to $510.What is the amount of gross margin that results from these transactions?

Question

Quizplus · Accepted Answer

1) Cost of inventory: $17,100
2) Freight cost: $710
Total cost: $17,810
3) Discount earned: 4% of $17,100 = $684
Amount paid within the discount period: $17,810 - $684 = $17,126
4) Revenue: $25,700
Freight out: $510
Total revenue: $25,190
Gross margin: $25,190 - $17,126 = $8,064
Therefore, the answer is D.

Assume the Perpetual Inventory System Is Used