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Darlington Company entered into the following business events during its first month of operations. The company uses the perpetual inventory system.

1) The company purchased $12,500 of merchandise on account under terms 2/10, n/30.
2) The company returned $1,200 of merchandise to the supplier before payment was made.
3) The liability was paid within the discount period.
4) All of the merchandise purchased was sold for $18,800 cash.

-What is the gross margin that results from these four transactions?

Question

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Darlington Company entered into the following business events during its first month of operations. The company uses the perpetual inventory system.

1) The company purchased $12,500 of merchandise on account under terms 2/10, n/30. 
2) The company returned $1,200 of merchandise to the supplier before payment was made. 
3) The liability was paid within the discount period. 
4) All of the merchandise purchased was sold for $18,800 cash.

-What is the gross margin that results from these four transactions?

Quizplus · Accepted Answer

Purchase discount = (List price of purchase - List price of return)× discount percentage
Purchase discount = ($12,500 - $1,200)× 0.02 = $226
Cost of goods sold = List price of purchase -List price of return - Purchase discount
Cost of goods sold = $12,500 -$1,200 - $226 = $11,074
Gross margin = Net sales - Cost of goods sold
Gross margin = $18,800 - $11,074 = $7,726

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