[nammu12]

On January 1, 2002, Strauss Department Store purchased five sweaters from Charter Manufacturers for $20 each. On April 1, 2002, Ms. Landers purchased those sweaters from Strauss for $35 each. Strauss should recognize a

1. $75 increase in revenue for the sale of the sweaters to Ms. Landers.
2. $100 increase in revenue for the sale of the sweaters to Ms. Landers.
3. $75 increase in cost of goods sold for the sale of sweaters to Ms. Landers.
4. $100 increase in cost of goods sold for its sale of sweaters to Ms. Landers.
5. $175 increase in cost of goods sold for its sale of sweaters to Ms. Landers.

I believe answer 1 is correct. $75 Increase in revenue for the sale of the sweaters to Ms. Landers.

Some one please confirm

Thanks

[ScottGem]

1. Looks correct to me, more by process of elimination then anything else.

[CaptainForest]

I disagree with you Scott.

Upon making the sale, the increase in revenue was 5 x 35 = 175

The increase in COGS was 20 x 5 = 100

Therefore, I would say the answer is 4)

[ScottGem]

OK, I was thinking profit not revenue. But that would be too simplistic. Not sure I get how it increases the COGS. Isn't the COGS what they paid?

[nammu12]

Captaion, cost of goods sold original cost is $100 and sold for $ 175. It should be $75 increase in COGS or $75 increase in revenue. The answer is either 1 or 3. What do you say.

[CaptainForest]

When the 5 items were bought by Stratus, the JE would have been:
Dr. Inventory 100
Cr. Cash 100
5 items x $20/each = $100

When the 5 items were sold to Ms. Landers, the JE would have been:
Dr. Cash 175
Cr. Revenue 175
5 items x $35 = $175

Also, Status would make the following JE to adjust for the inventory they on longer have:
Dr. COGS 100
Cr. Inventory 100

Therefore, due to this sale to Ms. Landers, revenue has been increased by $175 and COGS has been increased by $100

I still say the answer is choice 4

nammu12, why do YOU think the answer is 1 or 3? Maybe I am wrong, please elaborate on your reasoning as to why you think it is 1 or 3.

[nammu12]

The reason why I am saying is 175-100= 75. So either increase by 75 revenue or $75 increase in COGS. But I am not sure. If you are confident on your answer, I will go with your answer. The reason is this is my first accounting class. I am nowhere related to accounting professionally.

[CaptainForest]

I still don't quite understand why you are saying 75.

Are you perhaps saying Revenue 175 – COGS 100 = 75 in profit?

Which is true, they only record an increase of $75 profit, but that is not one of the choices. I would go with choice 4.

[nammu12]

Thanks captain. Your answer is right.

[CaptainForest]

You're welcome nammu12