Question

Assume that Mitchell Company uses a periodic inventory system and has these account balances: Purchases $600,000; Purchase Returns and Allowances $25,000; Purchases Discounts $11,000; and Freight-in $19,000; beginning inventory of $45,000; ending inventory of $55,000; and net sales of $750,000. Determine the amounts to be reported for cost of goods sold and gross profit.

Answer 1

Cost of goods sold = $573,000

Gross Profit = $177,000

Step-by-step explanation:

Data provided in the question:

Purchases = $600,000

Purchase Returns and Allowances = $25,000

Purchases Discounts = $11,000

Freight-in = $19,000

Beginning inventory = $45,000

Ending inventory = $55,000

Net sales = $750,000

Now,

Total Goods Available for Sale =

Beginning Inventory + Purchases + Freight-In - Purchase Returns and Allowances - Purchases Discounts

= $45,000 + $600,000 + $19,000 - $25,000 - $11,000

= $628,000

Thus,

Cost of goods sold = Total Goods Available for Sale - ending inventory

= $628,000 - $55,000

= $573,000

Gross Profit = Net sales - Cost of goods sold

= $750,000 - $573,000

= $177,000