Richmond Company had the following information taken from its 20A adjusted trial balance: Sales,$200,000; Sales Discounts,$4,000; Beginning Inventory,$10,000; and Purchases,$140,000.A physical count of the merchandise on hand at the end of the year showed $20,000.Compute the gross margin (gross profit)that would appear in the income statement.

Question

Quizplus · Accepted Answer

Gross margin (gross profit) is calculated by subtracting the cost of goods sold from the net sales. To find the cost of goods sold, we need to subtract the ending inventory from the cost of goods available for sale (beginning inventory + purchases).

Beginning inventory + Purchases = $10,000 + $140,000 = $150,000
Cost of goods sold = $150,000 - $20,000 = $130,000
Net sales - Cost of goods sold = Gross margin (gross profit)
$200,000 - $130,000 = $70,000

However, the question states that there were sales discounts of $4,000. This means that some customers did not pay the full amount for their purchases. Sales discounts are deducted from gross sales to arrive at net sales.

Gross sales - Sales discounts = Net sales
$200,000 - $4,000 = $196,000

So, the updated calculation for gross margin (gross profit) is:

Net sales - Cost of goods sold = Gross margin (gross profit)
$196,000 - $130,000 = $66,000

Therefore, the answer is B) $66,000.

Richmond Company Had the Following Information Taken from Its 20A