Hair World Inc. is a wholesaler of hair supplies. Hair World uses a perpetual inventory system. The following transactions (summarized) have been selected for analysis:
a. Sold merchandise for cash (cost of merchandise $ 28,797). $ 51,200
b. Received merchandise returned by customers as unsatisfactory (but in perfect condition) for cash refund (original cost of merchandise $ 360). 600
c. Sold merchandise (costing $ 4,750) to a customer on account with terms 2/10, n/30. 10,000
d. Collected half of the balance owed by the customer in (c) within the discount period. 4,900
e. Granted a partial allowance relating to credit sales that the customer in (c) had not yet paid. 160
Required:
1. Compute Sales Revenue, Net Sales, and Gross Profit for Hair World.
2. Compute the gross profit percentage (using the formula shown in this chapter and rounding to one decimal place).
3. Prepare journal entries to record transactions (a)–(e).
4. Hair World is considering a contract to sell merchandise to a hair salon chain for $ 15,000. This merchandise will cost Hair World $ 10,000. Would this contract increase (or decrease) Hair World’s gross profit and gross profit percentage?