Mustang Company reported $1,200,000 net sales and $635,000 cost of goods sold for the 11 months ended November 30, 2014. Mustang offers a full refund for any merchandise returned within 30 days of sale.

Additional information for the month of December is as follows:

1. Refunds paid to customers totalled $20,000. All merchandise was returned to inventory. The cost of the merchandise returned was $10,600.

2. Included in the $125,000 of sales was $12,000 for merchandise shipped FOB destination on December 31, 2014. The customers received the goods on January 5, 2015. The cost of the merchandise shipped on December 31, 2014, was $6,300.

3. The company estimates that during January 2015, it will refund customers $11,000 and that the estimated cost of the inventory returned will be $5,800. These estimated returns relate to the December sales. Normally, returned merchandise is returned to inventory.

4. Mustang's year end is December 31 and the company prepares adjusting journal entries annually.

Instructions

Calculate the net sales, cost of goods sold, and gross profit that Mustang will report in its income statement for the year ended December 31, 2014.

Taking It Further

How would your response change if the merchandise returned in December and anticipated to be returned in January is not returned to inventory for resale? Explain.