Larry's Building Supplies (LBS) is a locally owned and operated hardware store. LBS uses a perpetual inventory system.
The following transactions (summarized) have been selected from 2013:
a. Sold merchandise for cash (cost of merchandise $224,350)........................ $500,000
b. Received merchandise returned by customers as
unsatisfactory (but in perfect condition),
for cash refund (original cost of merchandise $1,900)...................................... 3,000
c. Sold merchandise (costing $3,000) to a customer, on account
with terms 2/10, n/30........................................................................... 5,000
d. Collected half of the balance owed by the
customer in (c) within the discount period.................................................. 2,450
e. Granted an allowance to the customer in ( c ).............................................. 950
Required:
1. Compute Sales Revenue, Net Sales, and Gross Profit for LBS.
2. Compute the gross profit percentage (using the formula shown in this chapter).
3. Prepare journal entries to record transactions ( a )-( e ).
4. LBS is considering a contract to sell building supplies to a local home builder for $20,000. These materials will cost LBS $16,000. Would this contract increase (or decrease) LBS's gross profit and gross profit percentage? How should LBS decide whether to accept the contract?