Arrow Company purchased $4000 of merchandise on account. Arrow sold the merchandise to a customer for $7000 cash. What is the increase in gross margin and the net change in cash flow from operating activities as a result of these transactions?
GROSS MARGIN CF from Operating Activities a) $7000 $4000 inflow b) $3000 $7000 inflow c) $3000 $7000 outflow d) $4000 $7000 inflow
Well, the "$7000 cash" received should be a big hint to answer the cash flow part of the question. The $4000 is not considered an outgoing cash flow yet because it is still on account (a check for the merchandise has not been cut yet). The formula for gross margin should be in your text, but it is very easy to determine it since you don't have to worry about operating expenses.
The only remaining unanswered questions is, is this a 2 point or 3 point problem?
"Rich" wrote > > Arrow Company purchased $4000 of merchandise on account. Arrow sold
So if Gross Margin = Revenue - Cost
7000-4000000 The answer would be b) since the 7000 is a cash inflow.BeanSmart website is not affiliated with any of the manufacturers or service providers discussed here. All logos and trade names are the property of their respective owners.