Northwest Fur Co. started 2013 with $103,000 of merchandise inventory on hand. D

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?

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?

Explanation / Answer

Gross purchases $600,000
less purchase returns $4,500
less purchase discounts 23820 [($600,000 - $4,500)*4%]
Net purchases 571680

add freight inward $9000
Purchases = 580,680

COGS = Beginning inventory + purchases - ending inventory
$370,000 = $103,000 + 580,680 - ??

From this, you can work out ending inventory to be $313,680

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