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Assume the perpetual inventory method is used.
1)Green Company purchased merchandise inventory that cost $64,000 under terms of 2/10,n/30 and FOB shipping point.
2)The company paid freight cost of $2,400 to have the merchandise delivered.
3)Payment was made to the supplier within 10 days.
4)All of the merchandise was sold to customers for $94,000 cash and delivered under terms FOB shipping point with freight cost amounting to $1,600.
-The gross margin from these transactions of Green Company is

Question

Quizplus · Accepted Answer

The cost of the merchandise inventory is calculated by subtracting the discount from the purchase price:
$64,000 - ($64,000 x 2%) = $62,720
Adding the freight cost of $2,400, the total cost of the inventory is $65,120.
When the inventory is sold for $94,000 with freight cost of $1,600, the revenue is $95,600.
The gross margin is calculated as:
Gross Margin = Revenue - Cost of Goods Sold - Freight Cost
Gross Margin = $95,600 - $65,120 - $1,600
Gross Margin = $28,880
Therefore, the correct choice is C.

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