Chapter 6, Problem 14E

Analyzing and Recording Sales and Gross Profit with Sales Returns

Cycle Wholesaling sold merchandise on account, with terms n/60, to Sarah’s Cycles on February 1 for $800 (cost of goods sold of $500). On February 9, Sarah’s Cycles returned to Cycle Wholesaling one-quarter of the merchandise from February 1 (cost of goods returned was $125). Cycle Wholesaling uses a perpetual inventory system, and it allows returns only within 15 days of initial sale.

Required:

1. 1. Prepare the journal entry Cycle Wholesaling makes to record the sale to Sarah’s Cycles.
2. 2. Prepare the journal entry Cycle Wholesaling makes to record the goods returned on February 9.
3. 3. Prepare the journal entry Cycle Wholesaling makes when the remaining balance owed by Sarah’s Cycles is collected in full on March 2.
4. 4. Calculate the gross profit percentage for the sale to Sarah’s Cycles (rounded to one decimal place).