Assume the perpetual inventory method is used and the following events occurred:

• The company purchased $25,000 of merchandise on account under terms 2/10, n/30.
• The company returned $1,500 of merchandise to the supplier before payment was made.
• The liability was paid within the discount period.
• The net amount of the merchandise purchased was sold for $28,000 cash.

5. The amount of gross margin from the four transactions is: A. $4,500. B. $4,970. C. $5,000. D. $5,060.

6. During a period of declining purchase prices (i.e., costs) for inventory but constant selling prices, which cost flow assumption will result in the highest gross margin? A. Weighted average B. FIFO C. LIFO D. Either weighted average or FIFO

7. Anchor Company sold merchandise with a cost of $450 to a customer for $775 on account. Due to an error, no portion of this sale transaction was recorded in the accounting records. What effect will the failure to make the necessary entries have on the company's accounting equation? A. Total assets and total equity will be understated. B. Total assets will be overstated and total equity will be understated. C. Total assets and total equity will be overstated. D. The accounting equation will not be affected.