If a merchandising company ends a period with a larger inventory than it had at

Question

If a merchandising company ends a period with a larger inventory than it had at the beginning of the period, then:

a) The cost of goods sold was larger than net purchases.

b) Net income was larger than gross profit.

c) The cost of goods sold was less than net purchases.

d) The cost of goods available for sale was less than the cost of goods sold.

e) Gross profit was larger than the cost of goods sold.

Breifly explain reasoning:

I think its c. You purchased more (net purchases) than you sold so the cost of goods sold is less (inventory). But I'm not sure. Wanted to verify. Thanks.

Explanation / Answer

If a merchandising company ends a period with a larger inventory than it had at the beginning of the period, then:

c) The cost of goods sold was less than net purchases.

Breifly explain reasoning:

Yes. Your resoning is correct. As Sales were less than Purchases, Inventory was high.

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