Question

Barbara operates a sporting goods store. She uses the cash method and treats inventory as nonincidental supplies. At the beginning of the year, she had inventory of $26,000. She purchased $470,000 of goods during the year. Her ending inventory was $42,000. She makes sure to pay all of her suppliers by the last day of her tax year. What is Barbara's inventory deduction for the year

Answer 1

Answer:

$454,000

Explanation:

Ending inventory is the value of the inventory in the store at the end of the year.

Goods are purchased and added to the the beginning inventory, the sale for the period is deducted from it. the residual value is the value of ending Inventory.

In This question it is assumed that there is $26,000 of beginning inventory of the goods. $470,000 of the purchases were made and at the end of the year there was $42,000 balance of inventory.

We can calculate the deduction value as follow

Ending Inventory = Beginning Inventory + Purchases - deduction

$42000 = $26,000 + $470,000 - deduction

$42000 = $496,000 - deduction

Deduction = $496,000 - $42,000 = $454,000