Academy Sales Company (ASC) started the 2007 accounting period with the balances given in the following financial statements model. During 2007 ASC experienced the following business events.

1. Purchased \($16,000\) of merchandise inventory on account, terms 2/10, n/30.

2. The goods that were purchased in Event 1 were delivered FOB shipping point. Freight costs of \($600\) were paid in cash by the responsible party.

3. Returned \($500\) of goods purchased in Event 1. The net price of these goods is 500 X .98 = \($490\).

4. Paid the balance due on the account payable. The payment was made after the discount period had expired.

5a. Recognized \($21,000\) of cash revenue from the sale of merchandise.

b. Recognized \($15,000\) of cost of goods sold.

6. The merchandise in Event 5a was sold to customers FOB destination. Freight costs of \($950\) were paid in cash by the responsible party.

7. Paid cash of \($4,000\) for selling and administrative expenses.

Required:

a. Record these transactions in a financial statements model like the following one.

b. Calculate the gross margin percentage. Based on ASC’s gross margin percentage and the information shown in Exhibit 3.8, classify ASC as an upscale department store, a retail discount store, or an office supplies store.

Data From Exhibit 3.8:-

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Event Accts. No. Cash + Inv. = Pay. + Com. Stk. + Ret. Earn. Rev. - Exp. = || Net Inc. Cash Flow Bal. 25,000 + 3,000 0 + 18,000 + 10,000 NA - - NA = NA NA