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A merchandiser has net sales of $940 and cost of sales of $340. What is its gross profit?
A$1,280
B$340
C$600
D$940
Answer & Solution
Correct answer: C. $600
1. Gross Profit = Net Sales - Cost of Sales.
2. Gross Profit = $940 - $340 = $600.
3. $340 just repeats cost of sales; $1,280 wrongly adds the two figures.
4. $940 ignores cost of sales entirely.
_Source: Jonick, Principles of Financial Accounting (CC BY-SA 4.0), §3.2 "Merchandising Income Statement", p.93_