Question 23

A company shows the following balances:

Cost of goods sold	$900,000
Sales	2,000,000
Sales discounts	25,000
Sales returns and allowances	225,000

What is the gross profit margin?

42.5%

48.6%

49.3%

55.0%

26 Sales Allowances and Sales Discounts

both have a normal debit balance and are therefore regarded as expense accounts.

are both designed to encourage customers to pay their accounts promptly.

are both contra revenue accounts to Sales.

both have a normal credit balance.

27.Which one of the following statements is true?

When the terms of sale are FOB shipping point, the seller is responsible for any damages to the goods during shipping.

When returned merchandise is defective, the seller's sales account is debited.

The first-in, first-out (FIFO) inventory cost method results in cost of goods sold valued at the most recent cost.

In periods of falling prices, FIFO will result in a higher ending inventory valuation than the average cost formula.

None of the above is true.

Question 32

A company just starting its business made the following four inventory purchases in June:

Date	Number of Units	Total Cost
Jun 1	150	$480
Jun 10	200	660
Jun 15	200	680
Jun 28	150	525

On June 25, the company made its first sale when a local customer purchased 500 units for $3,500. The company uses a perpetual inventory system. The inventory cost formula that results in the highest gross profit for June is

average.

gross profit is the same under both cost formulas.

not determinable.

FIFO.