Question

Northwest Fur Co. started 2013 with $103,000 of merchandise inventory on hand. During 2013, $600,000 in merchandise was purchased on account with credit terms of 4/15, n/45. All discounts were taken. Purchases were all made f.o.b. shipping point. Northwest paid freight charges of $9,000. Merchandise with an invoice amount of $4,500 was returned for credit. Cost of goods sold for the year was $370,000. Northwest uses a perpetual inventory system.
What is ending inventory assuming Northwest uses the gross method to record purchases?

$313,680.
$313,620.
$337,500.
$342,000.

Answer 1

Answer:

Ending inventory: $313.680

Explanation:

We must subtract returned for credit merchandise to purchases to get the net purchases; discounts on purchases would be 4% because the Company paid until 15 days after the invoices issues dates; and Northwest Fur Co. has to bear all costs and risks of the goods when these arrives to the named port of shipment, not before. Then, this is the way to calculate the ending inventory:

Initial inventory                            $103.000

Plus purchases                          +$600.000

Less returns on purchases             -$4.500

Net purchases                           =$595.500

Less discounts on purchases       -$23.820

Plus freight charges                       +$9.000

Less cost of good solds             -$370.000

Ending inventory                        =$313.680