Exercise 5-6 and Comparative Analysis

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Exercise 5-6

On May 11, York Co. accepts delivery of $38,000 of merchandise it purchases for resale from Troy Corporation.  With the merchandise is an invoice dated May 11, with terms of 3/10, n/90, FOB shipping point.  The goods cost Troy $25, 460.  When the goods are delivered, York pays $520 to Express Shipping for delivery charges on the merchandise.  On May 12, York returns $2,000 of goods to Troy, who receives them one day later and restores them to inventory.  The returned goods had cost Troy $1,393.  On May 20, York mails a check to Troy Corporation for the amount owed.  Troy receives it the following day.  (Both York and Troy use a perpetual inventory system.)

1. Prepare Journal entries that York Co. records for these transactions.

2. Prepare Journal entries that Troy Corporation records for these transactions. 

Comparative Analysis

Best Buy                        Circuit City                     RadioShack                                                                Current           Prior           Current           Prior              current        Prior ($ millions)                                             Year               Year                Year             Year                Year            Year

Revenues (net sales)……………………..$35,934        $30,848         $12,430       $11,514       $4,778        $5,082 Cost of sales …………………………………   27,165           23,122             9,501           8,704         2,544          2,706

Required

1. Compute the dollar amount of gross margin and the gross margin ratio for the two years shown for each of these companies. 

2. Which company earns more in gross margin for each dollar of net sales?  How do they compare to the industry average of 27.5%?

3.  Did the gross margin ratio improve or decline for these companies?

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