Question

For each of the following cases determine the ending balance in the inventory account. (Hint: First, determine the total cost of inventory available for sale. Next, subtract the cost of the inventory sold to arrive at the ending balance.) a. Jill’s Dress Shop had a beginning balance in its inventory account of $40,000. During the accounting period, Jill’s purchased $75,000 of inventory, returned $5,000 of inventory, and obtained $750 of purchases discounts. Jill’s incurred $1,000 of transportation-in cost and $600 of transportation-out cost. Salaries of sales personnel amounted to $31,000. Administrative expenses amounted to $35,600. Cost of goods sold amounted to $82,300. b. Ken’s Bait Shop had a beginning balance in its inventory account of $8,000. During the accounting period, Ken’s purchased $36,900 of inventory, obtained $1,200 of purchases allowances, and received $360 of purchases discounts. Sales discounts amounted to $640. Ken’s incurred $900 of transportation-in cost and $260 of transportation-out cost. Selling and administrative cost amounted to $12,300. Cost of goods sold amounted to $33,900.

Answer 1

Determination of Ending Inventory:

a) Beginning Inventory = $40,000

Purchases = $75,000

Purchases Return = ($5,000)

Purchases Discounts = ($750)

Freight-in = $1,000

Cost of Goods Available$110,250

less cost of goods sold ($82,300)

Ending Inventory $27,950

b) Beginning Inventory = $8,000

Purchases = $36,900

Purchases Return = ($1,200)

Purchases Discounts = ($360)

Freight-in = $900

Cost of Goods Available $44,240

less cost of goods sold ($33,900)

Ending Inventory $10,340

Step-by-step explanation:

a) Ending inventory represents the value of goods available for sale and held by a company at the end of an accounting period. It is calculated as follows: Beginning Inventory + Net Purchases - Cost of Goods Sold (or COGS) = Ending Inventory. The value of goods available for sale at the end of the accounting period is important in reporting the financial status of any trading or producing company.

b) The cost of goods available for sale includes the beginning inventory, the net purchases of inventory, and the freight-in during the period.

Answer 2

Jill's Dress Shop:

Ending Inventory 27,950

Ken's Bait Shop:

Ending Inventory 10,340

Step-by-step explanation:

Jill's Dress Shop:

Beginning 40,000

Purchases 75,000

Returned (5,000)

Discounts (750)

Freight-In 1,000

Cost of Goods Sold (82,300)

Ending Inventory 27,950

Ken's Bait Shop

Beginning 8,000

Purchases 36,900

Allowances (1,200)

Discounts (360)

Freight-In 900

Cost of Goods Sold (33,900)

Ending Inventory 10,340

The freight-out and sales discount have an impact in net sales and selling expenses they do not constitute part of the inventory as are relatedto the sale of the goods rather than acquisition.