Question

1. Compute (a) the cost of goods purchased and (b) the cost of goods sold.

Answer 1

Answer and Explanation:

1. The computation is shown below:

(a) For the cost of goods purchased

Purchases                                      $260,000

Add: Merchandise freight-in        $10,000

Less: Purchase returns

and allowances                       $(11,000)

Purchase discounts               $(9,000)

Cost of goods purchased         $250,000

(b) For the cost of goods sold

Merchandise inventory, January 1, 2011     $45,000

Add: Cost of goods purchased             $250,000

Goods available for sale                     $2,95,000

Less: Merchandise inventory,

December 31, 2011 $                                  ($52,000)

Cost of goods sold                               $243,000

2. Now the preparation of the income statement is presented below:

Marvin department store

Income statement

year ended December 31, 2017

(In thousands)

Revenues                                           $320,000

Less:

Cost of good sold (see above)         ($243,000)

Gross Margin                                       $77,000        

Less:

Operating costs:  

Marketing and advertising cost         ($24,000)

Shipping of merchandise to customers (2,000)

Building depreciation                              ($4,200)

General and administrative costs          ($32,000)

Total operating cost                              ($62,200)

Operating income                                 $14,800