Question

Bico Company began the period with $20,000 in inventory. The company also purchased an additional $20,000 of inventory and returned $2,000 for a full credit. A physical count of the inventory at year end revealed an inventory on hand of $16,000. The ending inventory amount on the financial statements will be:

a) $16,000
b) $18,000
c) $20,000
d) $22,000

Answer 1

The ending inventory amount on the financial statements will be $18,000. To calculate it, you need to start with the beginning inventory, add the purchases, subtract the returns, and then subtract the ending inventory from the total cost of inventory purchased.

Step-by-step explanation:

The ending inventory amount on the financial statements will be $18,000.

To calculate the ending inventory, we need to start with the beginning inventory ($20,000), add the purchases ($20,000), and subtract the returns ($2,000). So, the total cost of inventory purchased would be $20,000 + $20,000 - $2,000 = $38,000.

Next, we need to subtract the ending inventory, which is $16,000, from the total cost of inventory purchased to find the cost of goods sold (COGS). So, COGS = $38,000 - $16,000 = $22,000.

The ending inventory on the financial statements is calculated by subtracting the COGS from the total cost of inventory purchased. Therefore, the ending inventory is $38,000 - $22,000 = $18,000.