Question

Northwest Fur Co. started 2013 with $103,000 of merchandise inventory on hand. During 2013, $600,000 in merchandise was purchased on account with credit terms of 4/15, n/45. All discounts were taken. Purchases were all made f.o.b. shipping point. Northwest paid freight charges of $9,000. Merchandise with an invoice amount of $4,500 was returned for credit. Cost of goods sold for the year was $370,000. Northwest uses a perpetual inventory system.

What is ending inventory assuming Northwest uses the gross method to record purchases?
A. $313,680.
B. $313,620.
C. $337,500.
D. $342,000.

Answer 1

The ending inventory by using the gross method in order to record purchases amounts to $313,680. Hence, the correct option is A

Step-by-step explanation:

Net Purchases = Gross Purchases - Purchase returns - Purchase discount

= $600,000 - $4,500 - [($600,000 - $4,500) × 4%]

= $595,500 - $23,820

= $571,680

Purchases = Net Purchases + Freight inward

= $571,680 + $9,000

= $580,680

The ending inventory will be computed as:

COGS (Cost of goods sold) = Beginning inventory + Purchases - Ending inventory

$370,000 = $103,000 + $580,680 - Ending inventory

Ending inventory = $683,680 - $370,000

= $313,680