### Transaction Analysis: Educational Exercise---**Scenario:**Abbey Co. sold merchandise to Gomez Co. on account for $33,500 under the terms 2/15, net 45. The cost of the merchandise sold was $14,000. Subsequently, Abbey Co. issued a credit memo for $2,800 for defective merchandise, which was not returned to Abbey. Gomez Co. paid the invoice within the discount period. **Question:**What is the gross profit earned by Abbey Co. on these transactions?**Options:**- a. $32,830- b. $16,086- c. $2,800- d. $30,086**Solution Explanation:**1. **Calculate the Invoice Payment Amount:** - Original sale amount: $33,500 - Discount (2% of $33,500) because Gomez Co. paid within the 15-day discount period: \[ 0.02 \times 33500 = 670 \] - Amount after discount: \[ 33500 - 670 = 32830 \] **Note**: Gomez receives a $2,800 credit for defective merchandise not returned.2. **Total Receivable after Defective Merchandise Credit:** - Amount paid by Gomez Co. after discount and credit memo: \[ 32830 - 2800 = 30030 \]3. **Gross Profit Calculation:** - Revenue from the sale (after discount and credit): \[30030\] - Cost of goods sold: \[14000\] - Gross Profit: \[ 30030 - 14000 = 16030 \]**However, the question is about gross profit earned, so actual revenue recognized should factor in the original sales less returned value:**- Net revenue: \[ 33500 - 2800 = 30700 \]- Gross Profit adjustment: \[ 30700 - 14000 = 16700 \]Therefore, the correct gross profit amount is **$16,700****Final Answer:**None of the given options match the correct gross profit of **$16,700**. Ensure to verify calculations according to the standard accounting practices to confirm the correct choice, if mis

Net sales = Gross sales - Sales returns and allowance - Sales discount = $33,500 - $2,800 -…

Abbey Co. sold merchandise to Gomez Co. on account, $33,500, terms 2/15, net 45. The cost of the merchandise sold was $14,000. Abbey Co. issued a credit memo for $2,800 for defective merchandise, which was not returned to Abbey. Gomez Co. paid the invoice within the discount period. What is the gross profit earned by Abbey Co. on these transactions? Oa. $32,830 Ob. $16,086 Oc. $2,800 Od. $30,086

Abbey Co. sold merchandise to Gomez Co. on account, $33,500, terms 2/15, net 45. The cost of the merchandise sold was $14,000. Abbey Co. issued a credit memo for $2,800 for defective merchandise, which was not returned to Abbey. Gomez Co. paid the invoice within the discount period. What is the gross profit earned by Abbey Co. on these transactions? Oa. $32,830 Ob. $16,086 Oc. $2,800 Od. $30,086

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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