Outdoor World experienced the following business events during its first year of operation. The company uses a perpetual inventory system.1) Purchased merchandise on account for $170,000.2) Sold inventory costing $124,000 for $208,000 on account.3) Paid transportation-out cost of $7,000 on goods sold.4) Paid operating expenses of $55,200. 5) Sold land for $45,400 that had cost $50,000.6) A count of the inventory revealed that there was $45,800 of inventory on hand at the end of Year 1.Required: a) What was Outdoor World's net income for Year 1?b) What was the gross margin and the gross margin percent for Year 1?c) What amount of inventory will be reported on the balance sheet for December 31, Year 1?d) Prepare a multistep income statement for Year 1.

Question

What will be an ideal response?

Answer 1

a) Inventory shrinkage = $170,000 ? $124,000 ? $45,800 = $200
Cost of goods sold = Purchases ? cost of goods sold + Write-off of inventory shrinkage 
Cost of goods sold = $124,000 + $200 = $124,200
Loss on the sale of the land = $45,400 ? $50,000 = $4,600
Net income = Sales ? Cost of goods sold ? Operating expenses ? Transportation-out +/? Nonoperating items (here, the loss on the sale of the land)
Net income = $208,000 ? $124,200 ? $55,200 ? $7,000 ? $4,600 = $17,000
b) 
Gross margin = Net sales ? Cost of goods sold
Gross margin = $208,000 ? $124,200 = $83,800 
Gross margin percentage = $83,800 ÷ $208,000 = 40.29% 
c) The inventory shown on the balance sheet will be the amount on hand of $45,800.
d)