CHAPTER 6 - CHAPTER 6 HOMEWORK SOLUTIONS Questions: 2....

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CHAPTER 6 HOMEWORK SOLUTIONS Questions: 2. Gross profit or gross margin on sales is the difference between net sales and cost of goods sold. It represents the average gross markup realized on the goods sold during the period. The gross profit ratio is computed by dividing the amount of gross profit by the amount of net sales. For example, assuming sales of $100,000, and cost of goods sold of $60,000, the gross profit on sales would be $40,000. The gross profit ratio would be $40,000/$100,000 =.40. This ratio may be interpreted to mean that out of each $100 of sales, $40 was realized above the amount expended to purchase the goods that were sold. 3. A credit card discount is the fee charged by the credit card company for services. When a company deposits its credit card receipts in the bank, it only receives credit for the sales amount less the discount. The credit card discount account either decreases net sales (it is a contra revenue) or increases selling expense. 4. A sales discount is a discount given to customers for payment of accounts within a specified short period of time. Sales discounts arise only when goods are sold on credit and the seller extends credit terms that provide for a cash discount. For example, the credit terms may be 1/10, n/30. These terms mean that if the customer pays within 10 days, 1% can be deducted from the invoice price of the goods. Alternatively, if payment is not made within the 10-day period, no discount is permitted and the total invoice amount is due within 30 days from the purchase, after which the debt is past due. To illustrate, assume a $1,000 sale with these terms. If the customer paid within 10 days, $990 would have been paid. Thus, a sales discount of $10 was granted for early payment. Multiple Choice: 1. 2. b) 3. b) 4. d) 5. b) 6. c) 7. d) 8. b) 9. d) 10. c)
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Mini-Exercises: M6–3. Credit card sales (R) $8,000 Less: Credit card discount (XR) 240 Net credit card sales $7,760 Sales on account (R) $9,500 Less: Sales returns (XR) 500 9,000 Less: Sales discounts (1/2 x 9,000 x 2%) (XR) 90 Net sales on account $8,910 Net sales (reported on income statement) $16,670 M6–4. Gross Profit Percentage = Gross Profit = $56,000 – $48,000 = $8,000 = 0.143 Net Sales $56,000 $56,000 The gross profit percentage is 14.3%. This ratio measures the excess of sales prices over the costs to purchase or produce the goods or services sold as a percentage. It indicates a company’s ability to charge premium prices and produce goods and services at lower cost.
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M6–5. (a)
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This note was uploaded on 04/11/2008 for the course ACG 2021 taught by Professor Linkovich during the Spring '08 term at University of South Florida.

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CHAPTER 6 - CHAPTER 6 HOMEWORK SOLUTIONS Questions: 2....

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