1Which of the following is the entry used to determine cost of goods sold when t
ID: 2403080 • Letter: 1
Question
1Which of the following is the entry used to determine cost of goods sold when the periodic inventory system is used?
2.
Information from the 2010 financial statements of Bravura Corporation is shown below. Calculate the cash paid for merchandise inventory.
Sales
$800,000
Cost of goods sold
600,000
Ending inventory
60,000
Beginning inventory
70,000
Accounts payable, beginning balance
6,000
Accounts payable, ending balance
8,000
Accounts receivable, beginning balance
27,000
Accounts receivable, ending balance
23,000
Furshase Rhns Purchages Inventory (ending) Cost of Goods Sold AXK XHXX XXXK lnveutory (begiming) Purchases Discounts YOX
Explanation / Answer
Answers
When periodic system is used, adjustment to cost of goods sold and inventories are done at the period end through an adjusting entries. Physical count of ending units are taken and valuation by LIFO, FIFO, etc are carried out.
Cost of Goods Sold gets computed as: Beginning inventory value + Net purchases value – Ending Inventory value.
At the period end, this Cost of Goods Sold is DEBITED, and Inventory account is CREDITED.
Hence, the correct answer is Option ‘D’.
---Calculation of Inventory purchased:
Cost of Goods Sold = Beginning inventory + Purchases – Ending Inventory
Hence, Cost of Goods Sold – Beginning Inventory + Ending Inventory = Purchases
Purchases = 600,000 – 70,000 + 60,000 = $ 590,000
---Calculation of cash paid for merchandise purchased:
Beginning Accounts payable + Purchases – Cash paid for merchandise = Ending Accounts payable.
Hence, Beginning Accounts payable + Purchases(calculated above) – Ending Accounts payable = Cash paid for merchandise purchased
6,000 + 590,000 – 8,000 = $ 588,000
Hence, the correct answer is Option ‘B’ $ 588,000
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