Question

Pina Colada Lake Corporation’s accounting records show the following at year-end December 31, 2017: Purchase Discounts $7,700 Beginning Inventory $31,950 Freight-In 9,840 Ending Inventory 28,980 Freight-Out 10,050 Purchase Returns and Allowances 4,440 Purchases 164,480 Assuming that Pina Colada Lake Corporation uses the periodic system, compute cost of goods purchased and cost of goods sold.

Answer 1

(i) $162,180

(ii) $165,150

Step-by-step explanation:

Cost of goods purchased(net):

= Purchases - Purchase discount - purchase returns and allowances + freight in

= 164,480 - $7,700 - 4,440 + 9,840

= $162,180

Cost of goods sold:

= Beginning inventory + net purchase - ending inventory

= $31,950 + $162,180 - 28,980

= $165,150

**Freight out does not form part of cost of inventory as it is not related to purchase. It is related to sales.