1. **State the problem:** Prepare the statement of cost of goods sold (COGS) and gross profit for Entity B for the period ending December 31, 20x1. 2. **Calculate Net Sales:** Net Sales = Sales - Sales Discounts - Sales Returns $$\text{Net Sales} = 320,000 - 10,000 - 8,000 = 302,000$$ 3. **Calculate Net Purchases:** Net Purchases = Purchases + Freight-in - Purchase Discounts - Purchase Returns $$\text{Net Purchases} = 145,000 + 7,000 - 4,000 - 3,000 = 145,000$$ 4. **Calculate Cost of Goods Available for Sale:** $$\text{COG Available} = \text{Beginning Inventory} + \text{Net Purchases}$$ $$= 27,000 + 145,000 = 172,000$$ 5. **Calculate Cost of Goods Sold (COGS):** $$\text{COGS} = \text{COG Available} - \text{Ending Inventory}$$ $$= 172,000 - 32,000 = 140,000$$ 6. **Calculate Gross Profit:** $$\text{Gross Profit} = \text{Net Sales} - \text{COGS}$$ $$= 302,000 - 140,000 = 162,000$$ **Final Statement:** - Net Sales: 302,000 - Cost of Goods Sold: 140,000 - Gross Profit: 162,000