Question

During the months of January and February, Axe Corporation purchased goods from three suppliers. The sequence of events was as follows: January 6 Purchased goods for $1,200 from Green with terms 2/10,n/30. January 6 Purchased goods from Munoz for $900 with terms 2/10,n/30. January 14 Paid Green in full. February 2 Paid Munoz in full. February 28 Purchased goods for $350 from Reynolds with terms n/45. Required: Assume that Axe uses a perpetual inventory system, the company had no inventory on hand at the beginning of January, and no sales were made during January and February. Calculate the cost of inventory as of February 28.

Answer 1

To calculate the cost of inventory as of February 28, we consider the purchases made by Axe Corporation and their associated terms. By summing up the costs of the goods purchased but not yet paid for, we can determine the total cost of inventory as of February 28.

Step-by-step explanation:

In order to calculate the cost of inventory as of February 28, we need to consider the purchases made by Axe Corporation and the terms associated with each purchase.

1. On January 6, Axe purchased goods from Green for $1,200 with terms 2/10,n/30. This means that Axe can take a 2% discount if payment is made within 10 days, otherwise the full amount is due within 30 days.
2. On the same day, Axe purchased goods from Munoz for $900 with the same terms as the previous purchase.
3. On January 14, Axe paid Green in full and on February 2, Axe paid Munoz in full.
4. On February 28, Axe purchased goods from Reynolds for $350 with terms n/45, meaning the full amount is due within 45 days.

Since Axe uses a perpetual inventory system and had no inventory at the beginning of January, the cost of inventory as of February 28 can be calculated by summing up the cost of the goods purchased but not yet paid for. In this case, we add the costs of the goods purchased from Reynolds, Munoz, and Green, which gives us a total cost of inventory as of February 28 of $1,200 + $900 + $350 = $2,450.