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
The Effect Of Prepaid Taxes On Assets And Liabilities
Many businesses estimate tax liability and make payments throughout the year (often quarterly). When a company overestimates its tax liability, this results in the business paying a prepaid tax. Prepaid taxes will be reversed within one year but can result in prepaid assets and liabilities.
Final Accounts
Financial accounting is one of the branches of accounting in which the transactions arising in the business over a particular period are recorded.
Ledger Posting
A ledger is an account that provides information on all the transactions that have taken place during a particular period. It is also known as General Ledger. For example, your bank account statement is a general ledger that gives information about the amount paid/debited or received/ credited from your bank account over some time.
Trial Balance and Final Accounts
In accounting we start with recording transaction with journal entries then we make separate ledger account for each type of transaction. It is very necessary to check and verify that the transaction transferred to ledgers from the journal are accurately recorded or not. Trial balance helps in this. Trial balance helps to check the accuracy of posting the ledger accounts. It helps the accountant to assist in preparing final accounts. It also helps the accountant to check whether all the debits and credits of items are recorded and posted accurately. Like in a balance sheet debit and credit side should be equal, similarly in trial balance debit balance and credit balance should tally.
Adjustment Entries
At the end of every accounting period Adjustment Entries are made in order to adjust the accounts precisely replicate the expenses and revenue of the current period. It is also known as end of period adjustment. It can also be referred as financial reporting that corrects the errors made previously in the accounting period. The basic characteristics of every adjustment entry is that it affects at least one real account and one nominal account.
![### 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](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2F144c2c9c-91b9-49cf-afbb-f68e5ce96eb8%2F201b3c83-4bc1-46a6-b40d-c77ba83eca35%2Fltqxikm_processed.jpeg&w=3840&q=75)
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