Question

Nelson Company bought inventory for $50,000 on terms of 2/15, n/60. It pays for the first $37,500 of inventory purchased within the discount period and pays for the remaining $12,500 two months later.

1. Prepare the journal entries to record the purchase and the payment under both the (a) gross price and (b) net price methods. Assume that Nelson uses the periodic inventory system.
2. Next Level Which of the two methods yields a conceptually preferable valuation of inventory?

Answer 1

Net profit from stock transactions is calculated by subtracting the purchase price from the current price, multiplying by the number of shares, and then subtracting the transaction fees. Nike yielded a net profit of $15,240.01, Panda Express $7,790, and Wal Mart $27,887.01.

Step-by-step explanation:

The subject question involves calculating the net profit from stock transactions, given the initial purchase price, the current price, and the transaction fee for each stock company. Using the provided information, the net profit for each transaction would be calculated as follows:

1. Net Profit for Nike: (Current price - Purchase price) × Quantity - Transaction fee: (39.75 - 24.50) × 1000 - 9.99 = $15,240.01
2. Net Profit for Panda Express: (Current price - Purchase price) × Quantity - Transaction fee: (23.25 - 13.50) × 800 - 10 = $7,790
3. Net Profit for Wal Mart: (Current price - Purchase price) × Quantity - Transaction fee: (58.75 - 35.50) × 1200 - 12.99 = $27,887.01

These calculations consider the simple difference between the purchase price and the current price, multiplied by the number of shares, and then subtract the transaction fee to find the net profit for each stock. It is important to perform each calculation separately and carefully to avoid errors.