| Course | ACC-1010 Principles of Financial Accounting |
|---|---|
| Module | Module 3 |
| Paper type | Homework 3: financial results and merchandising activities |
| Length | About 829 words, 6 pages |
| Format | APA 7 student paper |
| School | Thomas Edison State University |
| Program | Bachelor of Science in Business Administration |
| Updated | October 2026 |
Free sample paper for ACC 1010 Module 3
Delaware River Music, Inc.: Merchandising Transactions and a Multi-Step Income Statement for July 2026
Student Name
Bachelor of Science in Business Administration, Thomas Edison State University
ACC-1010: Principles of Financial Accounting
Mentor Name
Month Day, Year
Delaware River Music, Inc.: Merchandising Transactions and a Multi-Step Income Statement for July 2026
In July 2026, its second month, Delaware River Music, Inc. began selling the instruments it bought in June, which made it a merchandising business as well as a service business. This homework records July's merchandising transactions under a perpetual inventory system, in which inventory and cost of goods sold are updated with every purchase and sale. It then prepares a multi-step income statement that separates gross profit on merchandise from the store's lesson and rental revenue, and closes with an analysis of what the gross margin says about the business. All figures are for a composite company.
Part A: Merchandising Transactions
The store began July with $22,000 of instrument inventory.
| Date | Transaction | Entry | Amount |
|---|---|---|---|
| July 2 | Buy band instruments on account, terms 2/10, n/30 | Inventory / Accounts payable | 15,000 |
| July 3 | Pay freight on the July 2 purchase, FOB shipping point | Inventory / Cash | 400 |
| July 11 | Pay for the July 2 purchase within the discount period | Accounts payable 15,000 / Inventory 300, Cash 14,700 | 15,000 |
| July 1-31 | Cash and card sales of instruments and accessories | Cash / Sales revenue | 21,500 |
| Cost of those sales | Cost of goods sold / Inventory | 12,900 | |
| July 1-31 | Sales on account to schools and families | Accounts receivable / Sales revenue | 9,800 |
| Cost of those sales | Cost of goods sold / Inventory | 5,880 | |
| July 19 | Customer returns a trumpet sold for $700, refunded in cash | Sales returns and allowances / Cash | 700 |
| Trumpet returned to stock | Inventory / Cost of goods sold | 420 | |
| July 31 | Physical count is $260 below the inventory account | Cost of goods sold / Inventory | 260 |
Several entries need explanation. Because the purchase was shipped FOB shipping point, the store owned the instruments from the moment they left the supplier and bore the freight cost, which becomes part of inventory cost rather than an operating expense. Paying within ten days earned a 2% discount of $300, which reduces the cost of the inventory purchased. The returned trumpet requires two entries: one reversing the sale through the contra-revenue account sales returns and allowances, and one putting the trumpet back into inventory at its $420 cost. Finally, the physical count found $260 less inventory than the records showed, from damage, miscounted strings and reeds or theft; under a perpetual system that shrinkage is added to cost of goods sold.
The inventory account tells a full story: $22,000 at the start, plus $15,000 purchased, plus $400 freight, less the $300 discount, less $18,780 of cost of goods sold, plus the $420 returned trumpet, less $260 of shrinkage, for an ending balance of $18,480, which agrees with the physical count.
Part B: Multi-Step Income Statement
| Delaware River Music, Inc. income statement, month ended July 31, 2026 | ||
|---|---|---|
| Sales revenue | $31,300 | |
| Less: Sales returns and allowances | (700) | |
| Net sales | $30,600 | |
| Cost of goods sold | (18,620) | |
| Gross profit on merchandise | 11,980 | |
| Lesson revenue | 7,400 | |
| Rental revenue | 5,200 | |
| Total service revenue | 12,600 | |
| Wages expense | 6,200 | |
| Rent expense | 3,200 | |
| Advertising expense | 900 | |
| Utilities expense | 700 | |
| Card processing fees | 450 | |
| Depreciation expense | 150 | |
| Total operating expenses | (11,600) | |
| Operating income | 12,980 | |
| Interest expense | (125) | |
| Income before income taxes | $12,855 |
Part C: What the Gross Margin Shows
Cost of goods sold of $18,620 is the $18,780 recorded with sales, less the $420 returned trumpet, plus the $260 of shrinkage. Gross profit on merchandise was $11,980, a gross margin of 39.2% of net sales. That margin is the share of each sales dollar left to cover operating expenses and profit after paying for the instruments themselves. It is a measure the owners will watch closely, because instrument retail competes with online sellers, and a falling margin would signal that discounting or rising supplier costs are eroding profitability.
Margins also need to be read alongside volume. Fairfield and Yohn (2001) showed that changes in a company's asset turnover help forecast changes in its profitability, while changes in profit margin on their own did not help, so a manager who looks only at margin can miss the more predictive signal. Soliman (2008) found that market participants respond to the components of return on assets, profit margin and asset turnover, not only to the total. For Delaware River Music, that means the owners should track how fast inventory turns as well as the margin earned on each sale; instruments sitting on the wall for a year tie up cash even if they eventually sell at a good price.
July's results show why the store's mix of businesses is valuable. Lessons and rentals brought in $12,600 with almost no direct cost of goods, compared with $11,980 of gross profit from $30,600 of instrument sales. Service revenue also arrives every week, while instrument sales will peak in August and September as school bands start. Williams et al. (2023) emphasize that the income statement's structure should help users understand how a business earns its profit, and separating the two kinds of revenue does exactly that.
References
Fairfield, P. M., & Yohn, T. L. (2001). Using asset turnover and profit margin to forecast changes in profitability. Review of Accounting Studies, 6(4), 371-385. https://doi.org/10.1023/A:1012430513430
Soliman, M. T. (2008). The use of DuPont analysis by market participants. The Accounting Review, 83(3), 823-853. https://doi.org/10.2308/accr.2008.83.3.823
Williams, J. R., Bettner, M. S., & Smith, K. R. (2023). Financial & managerial accounting: The basis for business decisions (20th ed.). McGraw-Hill Education.
Reading the ACC 1010 Module 3 assignment instructions
Module 3 of ACC-1010 turns from service businesses to merchandising companies. This module's template has you journalize a merchandiser's buying and selling, with its discounts, shipping charges and returns, most often on perpetual records, before building a multi-step income statement and working out gross profit or the gross margin percentage. Some versions add a single-step statement for comparison or ask you to explain the difference between perpetual and periodic systems. Work through each transaction in order, keep inventory and cost of goods sold updated after every entry, and use the textbook's account titles. Submit the completed template as the syllabus describes. Round to whole dollars unless the template asks for cents.
How this ACC 1010 Module 3 example is built
The homework keeps the same composite store from Modules 1 and 2, now selling the instruments it bought in June. Part A presents July's transactions in a table showing both entries for every sale, the revenue entry and the cost entry. A paragraph explains the four items students find hardest: FOB shipping point freight, the purchase discount, a return with its inventory reversal and shrinkage. A second paragraph traces the inventory account from opening balance to physical count. Part B is a multi-step income statement with merchandise and service revenue separated. Part C computes the gross margin and interprets it with two studies on profitability measures. Every figure in the statement can be traced back to a row in Part A.
Where the marks sit in the ACC 1010 Module 3 rubric
Homework grades in ACC-1010 rest mainly on correct entries and statements. For Module 3, mentors check that purchases, freight, discounts, returns and shrinkage are recorded in the correct accounts, that every sale has both a revenue and a cost entry under the perpetual system, and that the three key subtotals, from net sales down to gross profit, are computed without error. The multi-step statement must show its subtotals in the right order. Where the template asks for interpretation, a short, accurate explanation of gross margin earns credit. Consistency matters, since an error in cost of goods sold flows through gross profit and operating income. Gross margin should be shown as a percentage with one decimal place.
ACC 1010 Module 3 help: mistakes that cost marks
The most frequent Module 3 errors are forgetting the cost-of-goods-sold entry on each sale, recording freight-in as an expense instead of part of inventory, and recording a purchase discount as revenue. Sales returns go to a contra-revenue account, not directly against sales, and the returned item must also go back into inventory at cost. Know who pays freight under FOB shipping point versus FOB destination. Shrinkage increases cost of goods sold. Before submitting, trace your inventory account from beginning to end and compare it with any count given. Our tutors can complete an ACC 1010 Module 3 template with you, using the transactions your mentor assigned. A quick check: net sales minus gross profit should equal cost of goods sold.
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ACC 1010 Module 3 questions, answered
Where can I find a free ACC 1010 Module 3 sample paper?
The Module 3 homework above is complete: merchandising entries for a composite music store, an inventory reconciliation, a multi-step income statement and an analysis of gross margin, with references and margin notes.
What is the difference between perpetual and periodic inventory?
A perpetual system updates inventory and cost of goods sold with every purchase and sale. A periodic system updates them only at the end of the period after a physical count.
Is freight-in an expense?
No. Freight paid to bring purchased goods to the store, such as under FOB shipping point, is part of the cost of inventory and reaches the income statement through cost of goods sold.
How is a purchase discount recorded under a perpetual system?
It reduces the cost of the inventory purchased, so the entry credits inventory for the discount amount when the supplier is paid.
What is gross margin?
Gross profit divided by net sales. Put simply, it is the portion of every dollar of instrument sales that remains once the instruments themselves are paid for.