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Chapter 5: Q17SE (page 299)

M Wholesale Company began the year with merchandise inventory of \(5,000. During the year, M purchased \)93,000 of goods and returned \(6,600 due to damage. M also paid freight charges of \)1,200 on inventory purchases. At year-end, M’s ending merchandise inventory balance stood at $17,200. Assume that M uses the periodic inventory system. Compute M’s cost of goods sold for the year.

Short Answer

Expert verified

Answer

The cost of goods sold is$75,400.

Step by step solution

01

Meaning of Cost of Goods Sold

In accounting, the cost of goods sold denotes the amount of money a business spends to sell its goods. It includes thecost of inventories available, inventories purchases during the year, and excludes the inventory left at the end of the period.

02

Computation of cost of goods sold

Particulars

Amounts ($)

Opening inventory

5,000

Add: Purchases

93,000

Less: Goods returned

(6,600)

Add: Freight charges

1,200

Less: Closing inventory

17,200

Cost of goods sold

75,400

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Most popular questions from this chapter

Journalize the following transactions that occurred in March 2018 for Faucet. Assume Faucet uses the gross method to record sales revenue. No explanations are needed. Identify each accounts payable and accounts receivable with the vendor or customer name.

Mar. 3 Purchased merchandise inventory on account from Sidecki Wholesalers, \(3,500. Terms 2/15, n/EOM, FOB shipping point.

4 Paid freight bill of \)75 on March 3 purchase.

4 Purchased merchandise inventory for cash of \(2,200.

6 Returned \)800 of inventory from March 3 purchase.

8 Sold merchandise inventory to Harvey Company, \(5,700, on account. Terms 2/15, n/35. Cost of goods, \)2,508.

9 Purchased merchandise inventory on account from Teaton Wholesalers, \(6,000. Terms 2/10, n/30, FOB destination.

10 Made payment to Sidecki Wholesalers for goods purchased on March 3, less return and discount.

13 After negotiations, received a \)100 allowance from Teaton Wholesalers.

15 Sold merchandise inventory to Jackson Company, \(2,900, on account. Terms n/EOM. Cost of goods, \)1,276.

22 Made payment, less allowance, to Teaton Wholesalers for goods purchased on March 9.

25 Sold merchandise inventory to Secker for \(2,000 on account that cost \)880. Terms of 2/10, n/30 were offered, FOB shipping point. As a courtesy to Secker, $85 of freight was added to the invoice for which cash was paid by Faucet.

28 Received payment from Harvey Company.

29 Received payment from Secker, less discount.

30 Received payment from Jackson Company.

Suppose Piranha.com sells 3,500 books on account for \(17 each (cost of these books is \)35,700) on October 10, 2018 to The Textbook Store. One hundred of these books (cost $1,020) were damaged in shipment, so Piranha.com later received the damaged goods from The Textbook Store as sales returns on October 13, 2018.

Requirements

1. Journalize The Textbook Store’s October 2018 transactions.

2. Journalize Piranha.com’s October 2018 transactions. The company estimates sales returns at the end of each month.

Question: Journalize the following transactions that occurred in January 2018 for Mike’s Amusements. Assume Mike’s uses the gross method to record sales revenue. No explanations are needed. Identify each accounts payable and accounts receivable with the vendor or customer name.

Jan. 4 Purchased merchandise inventory on account from Vanderbilt Company, \(5,000. Terms 1/10, n/EOM, FOB shipping point.

6 Paid freight bill of \)150 on January 4 purchase.

8 Returned half the inventory purchased on January 4 from Vanderbilt Company.

10 Sold merchandise inventory for cash, \(1,100. Cost of goods, \)440. FOB destination.

11 Sold merchandise inventory to Gilmore Corporation, \(10,100, on account, terms of 3/10, n/EOM. Cost of goods, \)5,555. FOB shipping point.

12 Paid freight bill of \(30 on January 10 sale.

13 Sold merchandise inventory to Cadet Company, \)8,800, on account, terms of 3/10, n/45. Cost of goods, \(4,400. FOB shipping point.

14 Paid the amount owed on account from January 4, less return and discount.

18 Purchased inventory of \)4,600 on account from Roberts Corporation. Payment terms were 1/10, n/30, FOB destination.

20 Received cash from Gilmore Corporation, less discount.

26 Paid amount owed on account from January 18, less discount.

28 Received cash from Cadet Company.

29 Purchased inventory from Silk Corporation for cash, \(12,000, FOB shipping point. Freight in paid to shipping company, \)240.

Describe the journal entry(ies) when recording a sale of inventory using the periodic inventory system.

Journalize the following sales transactions for Paul Sportswear. Explanations are not required.

Aug. 1 Paul sold \(66,000 of women’s sportswear on account, credit terms are 2/10, n/30. Cost of goods is \)33,000. Paul uses the gross method to record sales revenue.

25 Paul receives payment from the customer on the amount due.
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