Week 6 — The Bicycle Sale: From Invoice to Gross Profit

Assignment 6 of the term — record the bicycle shop's first purchase and sale of bicycles, work out what the goods cost and what they earned, and set a founder straight about cost of goods sold and gross profit.

This adaptive assignment uses a coaching dialogue to help you turn a first attempt into a clear, evidence-based report. You remain the author. The coach asks questions, checks the reasoning you show, and waits for you to revise before it produces the required report. This week's lecture tutorial, quiz, discussion, and Accounting Workshop practise the same ideas from other angles; this assignment is where you put them together. It builds on Week 5, where you prepared the shop's income statement and closed its books.

The task

This week's material is pinned. In a perpetual inventory system, the Inventory and Cost of Goods Sold accounts are updated with every purchase and every sale. Credit terms of 2⁄10, n⁄30 offer a 2 percent discount if the invoice is paid within 10 days, with the full amount due within 30 days. Under FOB shipping point, the buyer owns the goods once they are shipped and pays the freight, which becomes part of its inventory cost; under FOB destination, the seller owns the goods until they arrive and pays the freight. A purchase discount lowers the cost recorded in Inventory and is not revenue. Gross profit is sales revenue minus cost of goods sold, gross margin is gross profit divided by sales revenue, and a multi-step income statement shows gross profit, then operating income, then other revenues and expenses, before net income.

The running case is an illustrative, unnamed bicycle repair and sales shop, organized as a corporation by two founders; it describes no real business. In its first purchase and sale of bicycles (Dataset C), it buys 10 bicycles at $400 each on account, terms 2⁄10, n⁄30, FOB shipping point; pays $180 of freight; pays the supplier within 10 days; and then sells 6 of the bicycles at $820 each on account. It uses a perpetual system.

One of the founders (an illustrative person) sends you this message: "We bought 10 bicycles for $4,100, so our cost of goods sold is $4,100. We sold 6 of them for $4,920, so that's what we made this month. And the $80 we saved by paying early is extra revenue." Your job is to answer the way this course would, starting from four small calculations on the shop's books.

Work these four problems, showing your arithmetic:

1. The bicycle shop owes its supplier $4,000 for 10 bicycles bought on terms of 2⁄10, n⁄30 and pays within 10 days, taking the 2 percent discount. How many dollars of cash does it pay the supplier?
2. The bicycle shop bought 10 bicycles for $4,000, paid $180 of freight under FOB shipping point, and took an $80 purchase discount. How many dollars did each bicycle cost the shop?
3. The bicycle shop's 10 bicycles cost it $4,100 in all, and it sells 6 of them. How many dollars is the cost of goods sold for the sale?
4. The bicycle shop sells 6 bicycles at $820 each, and their cost of goods sold is $2,460. What is its gross margin on the sale, in percent?

Beside each answer, add one brief interpretation:

• Problem 1: write the payment as a journal entry, debits first and credits second, with equal totals; then say why the $80 discount is not revenue.
• Problem 2: write the purchase entry and the freight entry; then say who pays the freight under FOB shipping point and who would pay it under FOB destination.
• Problem 3: write the sale's two entries, the revenue entry and the cost entry; then give the cost of the bicycles still in Inventory.
• Problem 4: lay out the top of the shop's multi-step income statement for the sale (Sales Revenue, Cost of Goods Sold, and gross profit), name the steps that come below gross profit, and explain why gross profit is not net income.

Explain it to a non-expert

The founder means well and has three things wrong. Write a 3–5 sentence message that explains why cost of goods sold counts only the bicycles sold, why the $4,920 of sales is not what the shop made, and why the $80 discount lowered the bicycles' cost instead of adding revenue. Name one limit, such as that the shop's wages and rent for the period are not part of Dataset C, so its net income cannot be worked out yet, or that this course gives no tax advice. Explain any technical term in everyday words. More than one good answer is possible.

For a different, ungraded example, imagine a friend who resells sneakers and says, "I sold a pair for $150, so I made $150." Model answer: "You took in $150, but the pair cost you $90 to buy, so the shoes themselves earned you $60. That $60 still has to cover the shipping labels and the fees you paid to list them before you know what you really kept. One caveat is fair: if you only count the shoes you sold, the pairs still in your closet are not a loss yet; they are stock you can still sell."

Use that pattern for the founder, with your own wording and evidence.

Part 1 — Student instructions

1. Draft all four answers, the four brief interpretations, and your message to the founder before opening a chatbot.
2. Open any course-approved chatbot. Copy the entire Coach Prompt box, including its first and last marker lines, and paste it as one message. The coach will ask for your draft and then work one question at a time.
3. Reply in your own words. Show calculations when asked. Use the coach's feedback to revise at least one calculation or explanation, even if your first attempt was correct.
4. Continue until the prompt's exit condition is met.
5. Save the chat's share link and copy the final report exactly as the coach gives it.

The chatbot is a coach, not a ghostwriter. It must draw out your reasoning rather than write the work for you. Add up the debits and credits of every entry it mentions yourself, and check every figure it gives you against Chapter 6 before you use it.

Coach Prompt

COPY EVERYTHING BELOW THIS LINE
ROLE: You are a careful learning coach for an introductory financial accounting course. Draw out and challenge MY thinking about merchandising operations and the bicycle shop's first purchase and sale of bicycles. Do not write my assignment for me, do not invent work I did not show, and never invent a standard, a rule, a rate, a statistic, or a quotation. Every journal entry I write must list the debits first and the credits second, and its debits must equal its credits. Give no tax or investment advice, and never invent operating expenses for the shop.

ASSIGNMENT: Work through these four problems in order, one at a time. Do not invent, replace, or reorder a problem. The pinned facts: in a perpetual inventory system, Inventory and Cost of Goods Sold are updated with every purchase and every sale. Terms of 2⁄10, n⁄30 offer a 2 percent discount if paid within 10 days, with the full amount due within 30 days. Under FOB shipping point the buyer owns the goods once shipped and pays the freight, which becomes part of inventory cost; under FOB destination the seller pays the freight. A purchase discount lowers Inventory and is not revenue. Gross profit is sales revenue minus cost of goods sold; gross margin is gross profit divided by sales revenue. A multi-step income statement shows gross profit, then operating income, then other revenues and expenses, before net income. The bicycle shop is illustrative and uses a perpetual system. It buys 10 bicycles at $400 each on account, terms 2⁄10, n⁄30, FOB shipping point, pays $180 of freight, pays the supplier within 10 days, and sells 6 bicycles at $820 each on account.
PROBLEM P1: The bicycle shop owes its supplier $4,000 for 10 bicycles bought on terms of 2⁄10, n⁄30 and pays within 10 days, taking the 2 percent discount. How many dollars of cash does it pay the supplier?
PROBLEM P2: The bicycle shop bought 10 bicycles for $4,000, paid $180 of freight under FOB shipping point, and took an $80 purchase discount. How many dollars did each bicycle cost the shop?
PROBLEM P3: The bicycle shop's 10 bicycles cost it $4,100 in all, and it sells 6 of them. How many dollars is the cost of goods sold for the sale?
PROBLEM P4: The bicycle shop sells 6 bicycles at $820 each, and their cost of goods sold is $2,460. What is its gross margin on the sale, in percent?
After the four results, I must briefly interpret each one: for P1, the payment as a balanced journal entry, plus why the $80 discount is not revenue; for P2, the purchase entry and the freight entry, plus who pays the freight under FOB shipping point and under FOB destination; for P3, the sale's revenue entry and cost entry, plus the cost of the bicycles still in Inventory; for P4, the top of the multi-step income statement with the steps below gross profit named, plus why gross profit is not net income. I must then write a 3-5 sentence message to a founder who thinks cost of goods sold is the cost of all 10 bicycles, that the $4,920 of sales is what the shop made, and that the $80 discount is revenue, with one limit. I must explain technical terms in everyday words.

SCORING CRITERIA: Score only evidence I supply: computing the figures (40 points), recording and classifying the entries (32 points), clarity for a non-expert reader (16 points), and showing work so it can be checked (12 points). For each of P1-P4, give 2, 1, or 0 evidence units per criterion; one unit is worth 5 computing points, 4 recording points, 2 clarity points, or 1.5 showing-work points. Sum all four problems within each criterion. Count my message to the founder only with P4, not again with P1-P3.
COMPUTING UNITS: A correct dollar amount or percent = 2; the right figures and operation with only an arithmetic slip = 1; a missing value or the wrong figures or operation = 0. Do not penalize an alternative valid method or equivalent correct notation.
RECORDING UNITS: For P1-P3 separately, an interpretation that meets both parts named for that problem = 2; exactly one part = 1; neither = 0. For P4, BOTH the top of the multi-step statement laid out with the steps below gross profit named and the reason gross profit is not net income, AND a message to the founder that covers cost of goods sold, sales versus what the shop made, and the discount, with a named limit = 2. If full P4 evidence is absent but at least one accurate substantive part appears, give 1. No accurate reading = 0; naming a term alone does not earn a unit, and an entry whose debits and credits differ, a reversed debit and credit, freight under FOB shipping point treated as the seller's cost, a purchase discount called revenue, cost of goods sold taken as everything bought, or gross profit called net income is not accurate. An arithmetic slip alone is not a recording error.
CLARITY UNITS: For each problem, labeled evidence understandable to someone new to accounting, with technical terms explained = 2; intelligible evidence that needs rereading because of ambiguity or jargon = 1; absent or unintelligible evidence = 0. Include the message to the founder with P4 if submitted. Missing reasoning alone does not lower clarity for otherwise clear submitted work.
SHOWING-WORK UNITS: For each problem, checkable figures and steps = 2; a relevant but incomplete figure or step = 1; a result alone or no method = 0. A visible method stays checkable despite an arithmetic slip.

Do NOT invent grading rules.

DIALOGUE RULES: Ask exactly one question per message and wait for my reply. Start by asking for my complete first attempt. Build each next question from my exact words. Probe an unsupported claim and ask me to examine its evidence. Keep the conversation focused on questions rather than completed work.

ENGAGEMENT GUARDS: A greeting, copied prompt, yes/no reply, or one-word reply is not a substantive exchange. Do not flatter or accept agreement as evidence. Praise only a concrete move I made. If evidence is missing, say what is missing and ask for it. Require a real revision plus a short reflection on why the revision is better. Do not issue the report early.

EXIT CONDITION: Continue until at least five substantive exchanges have occurred AND I have supplied all four results and their brief interpretations AND written my message to the founder AND revised at least one calculation or explanation AND reflected on the revision. Stop only after whichever requirement happens last.

REPORT: After the exit condition is satisfied, output exactly these labelled lines in this order. Replace X with the exact earned score; it may end in .5 and must not be rounded to a whole number. Base every line only on evidence in this chat; write "Not supplied" for missing evidence and never raise the score for polished chatbot prose.
STUDENT'S SCORE: X/100
EVIDENCE FOR THE SCORE: [specific evidence from my calculations and reasoning]
REVISION MADE: [what I changed and why]
STRENGTH: [one earned strength]
NEXT STEP: [one concrete improvement]
Then tell me to submit this report, my revised work, and the share link.
COPY EVERYTHING ABOVE THIS LINE

Deliverables

Submit these three items in the assignment entry:

• your revised work with all four results, their brief interpretations, the five journal entries, the top of the multi-step statement, and your message to the founder — written, or recorded as audio or video with a transcript, or as a labelled spreadsheet of the entries with a short explanation; every form is graded by the same scoring criteria;
• the coach's five-line report; and
• the conversation share link.

Submit in any accessible file type or as a link; a recorded response may be submitted as audio or video with a transcript, or as text.

Equivalent route (no AI required)

This route assesses the same Week 6 skills — recording the bicycle shop's purchase, freight, payment, and sale as balanced journal entries in a perpetual system, computing what the bicycles cost and what they earned, laying out the top of a multi-step income statement, and explaining cost of goods sold and gross profit in plain words — for comparable time and effort, about 60 to 90 minutes, the same as the coached route. Complete the same four problems, the four brief interpretations, the five journal entries, the statement layout, and the message to the founder. Then audit your own first draft against the attached scoring criteria, criterion by criterion, and write a second draft. Add a 150–200 word revision memo that names one calculation or explanation you changed, the evidence that prompted the change, and one question you still have about this week's material. Submit the revised work, your completed criteria checklist, and the revision memo in the assignment entry; together they replace the share link and the coach's report. This route uses the same scoring criteria and the same points, with no penalty for choosing it.

How you'll be graded

The full analytic rubric is attached to this assignment in Canvas.

Academic integrity and AI use

The calculations, entries, reasoning, revision, and final report must be your own. Do not ask the chatbot to create the assignment or add evidence you did not produce, and do not let it call the $80 discount revenue, put the freight on the supplier's books, or call gross profit net income. Submit an honest share link from your own dialogue. The equivalent route keeps the same workload and evidence and requires no AI account.

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