Larry’s Building Supplies (LBS) is a local hardware store. LBS uses a perpetual inventory system. The following transactions (summarized) have been selected for analysis:
a. Sold merchandise for cash (cost of merchandise $ 224,350). $ 500,000
b. Received merchandise returned by customers as unsatisfactory (but in perfect condition) for cash refund (original cost of merchandise $ 1,900). 3,000
c. Sold merchandise (costing $ 3,000) to a customer on account with terms 2/10, n/30. 5,000
d. Collected half of the balance owed by the customer in (c) within the discount period. 2,450
e. Granted a partial allowance relating to credit sales that the customer in (c) had not yet paid. 950
Required:
1. Compute Sales Revenue, Net Sales, and Gross Profit for LBS.
2. Compute the gross profit percentage (using the formula shown in this chapter and rounding to one decimal place).
3. Prepare journal entries to record transactions (a)–(e).
4. LBS is considering a contract to sell building supplies to a local home builder for $ 20,000. These materials will cost LBS $ 16,000. Would this contract increase (or decrease) LBS’s gross profit and gross profit percentage?