Consider the following short case as you respond to the question: VLC Corporation sold merchandise with a cost of $200 on account for $300 to PRT Corporation; credit terms were 2/10, n/30.VLC paid the outgoing freight charge of $10.PRT paid the invoice within the discount period.Inclusive of all the transactions that affect the income statement, VLC's gross profit on the sale was:
A)$100
B)$90
C)$94
D)$84

Question

Quizplus · Accepted Answer

The gross profit is calculated as the sales price minus the cost of goods sold (COGS). Here, the sales price is $300, but PRT Corporation took advantage of the 2% discount ($300 * 2% = $6), making the actual sales revenue $294 ($300 - $6). The COGS is $200, and the outgoing freight charge of $10 is also a cost to VLC, making the total cost $210 ($200 + $10). Therefore, the gross profit is $294 - $210 = $84. However, the freight charge does not reduce the gross profit; it's an operating expense. Thus, the correct calculation should not include the freight charge in the COGS, making the gross profit $294 - $200 = $94.

Consider the Following Short Case as You Respond to the Question