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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

Dobbs Wholesale Antiques makes all sales under terms of FOB shipping point. The company usually ships inventory to customers approximately one week after receiving the order. For orders received late in December, Kathy Dobbs, the owner, decides when to ship the goods. If profits are already at an acceptable level, Dobbs delays shipment until January. If profits for the current year are lagging behind expectations, Dobbs ships the goods during December.

Requirements

1. Under Dobbs’s FOB policy, when should the company record a sale?

2. Do you approve or disapprove of Dobbs’s manner of deciding when to ship goods to customers and record the sales revenue? If you approve, give your reason. If you disapprove, identify a better way to decide when to ship goods. (There is no accounting rule against Dobbs’s practice.)

What are the four steps involved in the closing process for a merchandising company?

Journalize the following transactions that occurred in January 2018 for Sylvia’s Amusements. No explanations are needed. Identify each accounts payable and accounts receivable with the vendor or customer name. Sylvia estimates sales returns at the end of each month.

Jan. 4 Purchased merchandise inventory on account from Vanderbilt Company, \(7,000. Terms 1/10, n/EOM, FOB shipping point.

6 Paid freight bill of \)100 on January 4 purchase.

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

10 Sold merchandise inventory for cash, \(1,600. Cost of goods, \)640. FOB destination.

11 Sold merchandise inventory to Graceland Corporation, \(10,800, on account, terms of 1/10, n/EOM. Cost of goods, \)5,400. FOB shipping point.

12 Paid freight bill of \(60 on January 10 sale.

13 Sold merchandise inventory to Cabbell Company, \)9,500, on account, terms of n/45. Cost of goods, \(5,225. FOB shipping point.

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

17 Received defective inventory as a sales return from the January 13 sale, \)600. Cost of goods, \(300.

18 Purchased inventory of \)4,600 on account from Roberts Corporation. Payment terms were 3/10, n/30, FOB destination.

20 Received cash from Graceland Corporation, less discount.

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

28 Received cash from Cabbell Company, less return.

29 Purchased inventory from Sandra Corporation for cash, \(11,600, FOB shipping point. Freight in paid to shipping company, \)240.

Journalize the following transactions that occurred in June 2018 for Daley Company. Assume Daley uses the periodic inventory system. No explanations are needed. Identify each accounts payable and accounts receivable with the vendor or customer name. Daley estimates sales returns at the end of each month.

Jun. 3 Purchased merchandise inventory on account from Sherry Wholesalers, \(5,500. Terms 3/15, n/EOM, FOB shipping point.

4 Paid freight bill of \)42 on June 3 purchase.

4 Purchased merchandise inventory for cash of \(1,100.

6 Returned \)200 of inventory from June 3 purchase.

8 Sold merchandise inventory to Henrich Company, \(4,400, on account. Terms 2/15, n/35.

9 Purchased merchandise inventory on account from Tex Wholesalers, \)4,600. Terms 1/10, n/30, FOB destination.

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

12 Received payment from Henrich Company, less discount.

13 After negotiations, received a \(300 allowance from Tex Wholesalers.

15 Sold merchandise inventory to Jarvis Company, \)1,500, on account. Terms n/EOM.

22 Made payment, less allowance, to Tex Wholesalers for goods purchased on June 9.

23 Jarvis Company returned \(100 of the merchandise sold on June 15.

25 Sold merchandise inventory to Smith for \)700 on account. Terms of 3/10, n/30 was offered, FOB shipping point.

29 Received payment from Smith, less discount.

30 Received payment from Jarvis Company, less return.

Click Computers’ Merchandise Inventory account at year-end is showing a balance of \(43,000. The physical count of inventory came up with \)42,500. Journalize the adjusting entry needed to account for the inventory shrinkage. The company uses the perpetual inventory system.
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