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A bakery had gross sales of $275,000, sales discounts of $2,500 and returns and allowances of $2,000. What are its net sales?
A$275,000
B$270,500
C$272,500
D$279,500
Answer & Solution
Correct answer: B. $270,500
1. Net sales is what is left after deducting sales discounts and returns and allowances from gross sales.
2. Start with gross sales of $275,000.
3. Add the two deductions: $2,500 of sales discounts plus $2,000 of returns and allowances equals $4,500.
4. Subtract: $275,000 minus $4,500 equals $270,500.
5. So net sales are $270,500.
6. Deducting only one of the two items gives $272,500, which is the trap set for a reader who stops after the discounts.
7. Adding the deductions instead of subtracting them gives $279,500, which would make returned goods increase sales.
_Source: OpenStax Introduction to Business (CC BY 4.0), Ch 14 "Using Financial Information and Accounting", section 14.5 The Income Statement_
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