Question

Abbey Co. sold merchandise to Gomez Co. on account, $29,300, terms 2/15, net 30. The cost of the goods sold is $20,510. Abbey Co. issued a credit memo for $2,500 for merchandise returned that originally cost $1,800. Gomez Co. paid the invoice within the discount period. What is the amount of gross profit earned by Abbey Co. on the above transactions?

Answer 1

Answer:

The amount of gross profit earned by Abbey Co. on the above transactions is $7,554.00

Step-by-step explanation:

What is the gross profit of Abbey Co?

Note that after sales of goods of $29,300 whose cost is $20,510 to Gomez Co, Gomez returned goods whose selling price is $2,500 and cost originally $1,800 to Abbey Co.

The implication of such goods returned is that $2,500 would be deducted from selling price and $1,800 would be deducted from cost of goods sold.

selling price=$29,300-$2,500

selling price=$26,800.00

cost of goods sold=$20,510-$1,800

cost of goods sold=$18,710.00

Note again that Gomez paid the invoice within the discount period, which means that net sales is the selling price of $26,800.00  minus 2% discount(2/15 means a discount of 2% is available if credit sales is settled in cash within the first 15 days of making sales0

net sales=$26,800.00*(1-2%)

net sales=$26,264.00

The gross profit is net sales minus the cost of goods sold

gross profit= $26,264.00-$18,710.00

gross profit=$7,554.00

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