Question

Cinnamon Buns Co. (CBC) started 2016 with $52,000 of merchandise on hand. During 2016, $280,000 in merchandise was purchased on account with credit terms of 2/10, n/30. All discounts were taken. Purchases were all made f.o.b. shipping point. CBC paid freight charges of $9,000. Merchandise with an invoice amount of $4,000 was returned for credit. Cost of goods sold for the year was $316,000. CBC uses a perpetual inventory system. Assuming CBC uses the gross method to record purchases, ending inventory would be: Multiple Choice a. $15,480. b. $15,400. c. $6,480. d. $21,000.

Answer 1

The ending inventory is $15,480

Step-by-step explanation:

The question is to determine the ending inventory for Cinnamon Buns Co (CBC) based on the gross method to record purchases as follows:

Opening Inventory $52,000

Purchased Inventory $280,000

Freight Charges $9,000

Deduct: Merchandise Returned (-$4,000)

Deduct Discounts (-5,500)

Cost of Goods available $331,480

Deduct: Cost of Goods Sold ($316,000)

The ending inventory is $15,480

Note: Discounts is calculated as follows; ($280,000 - 4000 -returned for credit) x 2% (terms of credit for 10 days)= $5,520