Lopez Sales Company had the following balances in its accounts on January 1, 2018: Cash$68,000 Merchandise Inventory 48,000 Land 108,000 Common Stock 88,000 Retained Earnings 136,000 Lopez experienced the following events during 2018: Sold merchandise inventory that cost $38,400 for $81,600. Sold land that cost $43,200 for $81,000. Required Determine the amount of gross margin recognized by Lopez. Determine the amount of the gain on the sale of land recognized by Lopez.

Lopez Sales Company

1. Amount of Gross Margin recognized by Lopez:

Sales = $81,600

Less cost of sales = $38,400

Gross Margin = $43,200

2. Amount of the gain on the sale of land recognized by Lopez:

Land:

Selling price = $81,000

less Cost = $43,200

Gain on sale = $37,800

Explanation:

a) Gross margin is the difference between the selling price and the cost price of a product.  It is the profit determined before business running expenses are deducted to obtain the net income or margin.

It measures the ability of the business to generate enough income to cover expenses that are normally incurred in business, like rent, utilities, and salaries and wages.

b) The Gain on sale of any capital asset is the difference between the selling price and the cost (book value).  This gain is reported separately in the income statement and is the subject of capital gains tax.

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