Question

4) Kelsea Co. started 2018 with $107,000 of merchandise inventory on hand. During 2018, $420,000 in merchandise was purchased on account with credit terms of 1/15, n/45. All discounts were taken. Purchases were all made f.o.b. shipping point. The company paid freight charges of $8200. Merchandise with an invoice amount of $4900 was returned for credit. Cost of goods sold for the year was $370,000. The company uses a perpetual inventory system. What is ending inventory assuming the company uses the gross method to record purchases

Answer 1

Ending inventory = 156,149

Step-by-step explanation:

Discount received = ($420,000 - $4900) × 1% = $4,151

Net purchases = Purchases + Freight charges - Merchandise return - Discount received = $420,000 + $8200 - $4900 - $4,151 = $419,149

Cost of good sold = Beginning inventory + Purchases - Ending inventory

Therefore, we have:

$370,000 = $107,000 + $419,149 - Ending inventory

$370,000 - $107,000 - $419,149 = - Ending inventory

- 156,149 = - Ending inventory

Ending inventory = 156,149