Explanation:
The journal entries are shown below:
On February 1
Account receivable - Sarah’s Cycles A/c Dr $550
To Sales $550
(Being the goods are sold on credit)
Cost of goods sold A/c Dr $375
To Merchandise Inventory A/c $375
(Being goods are sold at cost)
On February 9
Sales return and allowance A/c Dr $137.50 ($550 ÷ 4)
To Accounts receivable - Sarah’s Cycles $137.50
(Being sales return is recorded)
Merchandise Inventory A/c $85
To Cost of goods sold A/c Dr $85
(Being sales return is recorded)
On March 2
Cash A/c Dr $412.50 ($550 - $137.50)
To Accounts receivable - Sarah’s Cycles $412.50
(Being cash is received)
The net profit margin is
= (Net sales - Cost of goods sold) ÷ Net sales
= ($412.50 - $290) ÷ ($412.50)
= 29.69%
The cost of goods sold
= $375 - $85
= $290
