Question

Cinnamon Buns Co. (CBC) started 2018 with $52,000 of merchandise on hand. During 2018, $280,000 in merchandise was purchased on account with credit terms of 2/10, n/30. All discounts were taken. Purchases were all made f.o.b. shipping point. CBC paid freight charges of $9,000. Merchandise with an invoice amount of $4,000 was returned for credit. Cost of goods sold for the year was $316,000. CBC uses a perpetual inventory system. Assuming CBC uses the gross method to record purchases, ending inventory would be:

Answer 1

Answer:

$ 15,480

Explanation:

Data provided:

Beginning merchandise inventory = $ 52000  

merchandise purchased = $ 280000  

Freight charges = $ 9000  

Returned merchandise = 4000  

Discounts provided = 2/10 = 0.2 = 2%

thus,

for purchase merchandise, total discount = (Purchased - returned) × 2% = = (280000-4000) × 0.2  = $ 5520

Thus,

the cost of goods available for sale = (Beginning merchandise inventory + merchandise purchased + Freight charges - Returned merchandise - Discounts provided  )

or

the cost of goods available for sale

= $52000 + $280000 + $9000 - $4000 - $5520  ) = $ 331,480  

Also, Cost of goods sold = $ 316000

Hence,  

The ending inventory = cost of goods available for sale - Cost of goods sold or

The ending inventory = $ 331,480 - $ 316000 = $ 15,480