1) A company purchased $1,800 of merchandise on July 5 with terms 2/10, n/30. On

Question

1) A company purchased $1,800 of merchandise on July 5 with terms 2/10, n/30. On July 7, it returned $200 worth of merchandise. On July 8, it paid the full amount due. The amount of the cash paid on July 8 equals: 1) A) $1,564. B) $1,600. C) $200. D) $1,568. E) $1,800 2) Mega Skateboard Supplier had net sales of $2.8 million, its cost of goods sold was $1.6 million, and its net income was S0.9 million. Its gross margin ratio equals: 2) A)57%. B)43%. C) 5690, D)175%. E)32%. 3) A company purchased $1,800 of merchandise on July 5 with terms 2/10, n/30. On July 7, it returned S200 worth of merchandise. On July 12, it paid the full amount due. Assuming the company uses a perpetual inventory system, and records purchases using the gross method, the correcet journal entry to record the payment on July 12 is: 3) A) Debit Merchandise Inventory $1,600; credit Cash $1,600 B) Debit Cash $1,600; credit Accounts Payable $1,600. C) Debit Accounts Payable $1,600; credit Cash $1,600. D) Debit Accounts Payable $1,600; credit Merchandise Inventory $32; credit Cash $1,568. E) Debit Accounts Payable $1,800; credit Cash $1,800.

Explanation / Answer

Q1 Answer is D. $ 1568

the explanation is as follows:

Net Purchases (less returns) ( 1800-200) = 1600

Less: Discount availed as paid within credit terms@2% 32

Amount to be paid                                  $ 1568

Q 2. Answer is B. 43%

The explanation is as follows:

Sales   = 2.8 million

COGS = 1.6 million

Gross Profit (Sales-COGS) ( 2.8-1.6) = 1.2 million

Gross margin ratio = Gross profit/ sales *100 = 1.2 / 2.8 *100 = 43% approx.

Q 3. Answer is D. Debit Account payable $1600; Credit merchandise inventory $ 32 Credit Cash $1568

The explanation is as follows:

Journal entry for purchase and return will be as under during Gross method:

Merchandise Inventory Dr. 1800

Account payable Cr.                  1800

Accounts Payable Dr. 200

Merchandise Inventory Cr. 200

Thatmeans, above, inventory is shown at Gross amount $ 1600. therefore, to reduce the discount received from cost of merchandise inventory, the folowing entry has to be passed:

Accounts payable   Dr.   1600

Merchandise Inventory Cr. 32

Cash account Cr.             1568

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