On April 6, Year 1, Gringotts Company purchased $140,000 of merchandise inventory. Terms of the purchase included a discount of 3/20, n/30 and the freight terms were FOB destination. Freight costs amounted to $4,600. Gringotts paid the account payable on April 24. Gringotts sold all inventory for $189,500.Required: What is the amount of gross margin that will be shown on the income statement?
What will be an ideal response?
Purchase discount = List price of purchase × discount percentage
Purchase discount = $140,000 × 0.03 = $4,200
Cost of goods sold = List price of purchase ? Purchase discount + Transportation-in
Cost of goods sold = $140,000 ? $4,200 + $0* = $135,800
Gross margin = Net sales ? Cost of goods sold
Gross margin = $189,500 ? $135,800 = $53,700
* FOB destination indicates that the seller (rather than the Gringotts) pays the freight costs.
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