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11 October, 07:24

Cycle Wholesaling sold merchandise on account, with terms n/60, to Sarah's Cycles on February 1 for $1,250 (cost of goods sold of $725). On February 9, Sarah's Cycles returned to Cycle Wholesaling one-quarter of the merchandise from February 1 (cost of goods returned was $195). 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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  1. 11 October, 10:23
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    Answer and Explanation:

    Cycle Wholesaling

    1. Journal entry

    Dr Accounts receivable 1,250

    Cr Sales revenue 1,250

    Dr Cost of goods sold 725

    Cr Inventory 725

    2. Journal entry

    Dr Cash 1,225

    (98%*1250)

    Dr Sales discounts 25

    (2%*1250)

    Cr Accounts receivable 1,250

    3.

    Dr Cash 1,250

    Cr Account receivable 1,250

    4.

    Gross profit

    percentage / Net sales * 100

    500/1,225*100

    =40.81

    Gross profit percentage 40.81 %

    $1,250 - 725 - (2% * $1,250) = 500

    = $1,250 - (2% * $1,250) = 1,225
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