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Cycle Wholesaling sold merchandise on account, with terms n/60, to Sarah’s Cycles on February 1 for $1,200 (cost of goods sold of $700). On February 9, Sarah’s Cycles returned to Cycle Wholesaling one-quarter of the merchandise from February 1 (cost of goods returned was $190). Cycle Wholesaling uses a perpetual inventory system, and it allows returns only within 15 days of initial sale. Required: 1. to 3. Prepare the journal entry to record the sales, Goods returned on February 9 and Cash collected on March 2. 4. Calculate the gross profit percentage for the sale to Sarah’s Cycles.

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tutorAnne

Answer: Please find explanation column for answers

Explanation:

a)Journal  To record sales of merchandise

Date                 Accounts titles                Debit      Credit

Feb 1    Account receivable            1200  

Sales revenue                                               1200

Journal To record cost of goods sold

Cost of goods sold                            700  

Merchandise inventory                                          700

b)Journal To record sales return  

Date                 Accounts titles                          Debit      Credit

Feb 9 Sales return and allowance (1200/4) 300  

Account receivable                                                     300

To record cost of goods returned

Merchandise inventory                                           $190  

Cost of goods sold                                                               $190

c)Journal To record  cash collection  

Mar 2 Cash (1200 -300)                               $900

Account receivable                                                        $900

d) Gross Profit percentage  = Net Profit/Net sales =Net sales - cost oof goods sold/net sales

Cost of goods sold = cost of goods sold - cost of goods retuened = 700- 190 = 510

Net profit/ net sales = 900- 510/ 900=490/900= 0.54 = 54%

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