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

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1) Cost of merchandise inventory: $64,000
2) Freight cost paid: $2,400
Total cost of inventory: $64,000 + $2,400 = $66,400

Since the merchandise was sold FOB shipping point, the freight cost of $1,600 is not included in the cost of inventory. Therefore, the cost of goods sold is:

Cost of goods sold = Beginning inventory + Purchases - Ending inventory
Ending inventory = $0 (all inventory was sold)
Beginning inventory = $0 (assuming it was previously sold)
Purchases = Cost of merchandise inventory + Freight cost paid
Purchases = $64,000 + $2,400 = $66,400

Cost of goods sold = $0 + $66,400 - $0 = $66,400

Gross margin = Net sales - Cost of goods sold - Freight cost
Net sales = $94,000
Cost of goods sold = $66,400
Freight cost = $1,600
Gross margin = $94,000 - $66,400 - $1,600 = $25,000

Since the gross margin is the difference between the net sales and cost of goods sold (excluding freight) the answer is C) $28,880.

Assume the Perpetual Inventory Method Is Used