Abbey Co. sold merchandise to Gomez Co. on account, $35,000, terms 2/15, net 45. The cost of the merchandise sold was $24,500. Abbey Co. issued a credit memo for $3,600 for merchandise returned that originally cost $1,700. Gomez Co. paid the invoice within the discount period. What is the amount of gross profit earned by Abbey Co. on the above transactions?

Question

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The gross profit is calculated as the sales revenue minus the cost of goods sold (COGS). Initially, Abbey Co. sold merchandise for $35,000, with a COGS of $24,500. After the return of merchandise worth $3,600 (with a COGS of $1,700), the adjusted sales revenue is $35,000 - $3,600 = $31,400, and the adjusted COGS is $24,500 - $1,700 = $22,800. Gomez Co. paid within the discount period, so they took a 2% discount on the adjusted sales amount: $31,400 * 2% = $628. The final sales revenue after the discount is $31,400 - $628 = $30,772. Therefore, the gross profit is $30,772 (adjusted sales revenue) - $22,800 (adjusted COGS) = $7,972.

Abbey Co Sold Merchandise to Gomez Co