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Chapter 6 homework solutions

Chapter 6 homework solutions - Chapter 6 Reporting and...

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Chapter 6 Reporting and Interpreting Sales Revenue, Receivables, and Cash ANSWERS TO QUESTIONS 1. The difference between sales revenue and net sales is the amount of goods returned by customers because the goods were either unsatisfactory or not desired and also includes sales allowances given to customers (also refer to the answers given below to questions 3, 4 and 5). 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. 7. In conformity with the matching principle, the allowance method records bad debt expense in the same period in which the credit was granted and the sale was made. 8. Using the allowance method, bad debt expense is recognized in the period in which the sale related to the uncollectible account was recorded. 9. The write-off of bad debts using the allowance method decreases the asset accounts receivable and the contra asset allowance for doubtful accounts by the same amount. As a consequence, (a) net income is unaffected and (b) accounts receivable, net, is unaffected. .
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EXERCISES E6–1. Sales revenue ($1,000 + $900 + $500) ...................................... $2,400 Less: Sales discount ($1,000 collected from S. Green x 2%)... 20 Net sales ..................................................................................... $2,380 E6–6. Req. 1 WOLVERINE WORLD WIDE INC. Income Statement For the Year Ended Amount Percentage Sales of merchandise $888,926 100.0% Cost of products sold 562,338 63.3% Gross profit 326,588 36.7% Selling and administrative expense 246,652 27.7% Income from operations 79,936 9.0% Other income (expense) Interest expense (5,474) 0.6% Other income 686 0.1% Pretax income 75,148 8.5% Income taxes 23,262 2.6% Net Income $ 51,886 5.8% Earnings per share ($51,886 ÷ 40,721 shares) $1.27 Req. 2 Gross profit margin: $888,926 – $562,338 = $326,588 . Gross profit percentage ratio: $326,588 ÷ $888,926 = .367 (or 36.7% ). Gross margin or gross profit in dollars is the difference between the sales prices and the costs of purchasing or manufacturing all goods that were sold during the period (sometimes called the markup); that is, net revenue minus only one of the expenses--cost of goods sold. The gross profit ratio is the amount of each net sales dollar that was gross profit during the period. For this company, the rate
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