Exercise 1 - Reporting net sales and cost of goods sold Alon Inc. made the follo

Question

Exercise 1 - Reporting net sales and cost of goods sold Alon Inc. made the following transactions in 2018. Record the effect of each transaction on the accounts provided in the table below. Assume that all returned merchandise is considered obsolete and cannot be resold. January 5, 2018 Sold 10 pairs of shoes to customer A for $120 each. The credit terms are 2/15, n/45-The cost ofthe shoes was $700 (S70 per shoe). Sold one pair of shoes to customer B for $150 in cash. Customer B paid additional $3 sales tax. The cost of the shoes was $80 January 7, 2018 A returned 3 pairs of shoes. January 15, 2018 Customer January 17, 2018Customer A paid the amount he owed in cash. January 20, 2018 Sold 2 pairs of shoes to customer C for $280 in cash. The price also includes free shipping to the customer's home. The cost of the shoes was $120. Shipping cost was $14 March 22, 2018 Sold 5 pairs of shoes for S500 to customer D. Customer D paid with a Visa credit card Visa charges a 2% transaction fee. The cost of the shoes was S220. December 31, 2018 Alon Inc. expects that merchandise at the amount of S170 sold in 2018 will be returned in 2019 Date Jan. 5, 2018 Jan. 7. 2018 Jan. 15, 2018 Jan. 17, 2018 Jan. 20, 2018 Mar. 22, 2018 Dec. 31. 2018 Gross Revenues C Net Revenues Cost of sold Gross profit

Explanation / Answer

Date Gross Revenues Contra-revenues Net Revenues Cost of goods sold Gross profit Jan. 5, 2018 $1,200 $1,200 $700 $500 Jan. 7, 2018 $150 $150 $80 $70 Jan. 15, 2018 $360 -$360 -$360 Jan. 17, 2018 No effect No effect No effect Jan. 20, 2018 $280 $280 $120 $160 Mar. 22, 2018 $500 $500 $220 $280 Dec. 31, 2018 $170 -$170 -$170 Shipping Cost and Transaction fee will not be included in the calculation of Gross profit as these are operating expenses (selling and administrative expenses). Payment by customer on credit transaction won't affect gross profit as it chages cash balance and Account Receivables. All the returns from customer side will be deducted from sales if they are related current financial year sales no matter when it actually returned.

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