Cinnamon Buns Co. (CBC) started 2018 with $52,000 of merchandise on hand. During

Question

Cinnamon Buns Co. (CBC) started 2018 with $52,000 of merchandise on hand. During 2018, $280,000 in merchandise was purchased on account with credit terms of 2/10, n/30. All discounts were taken. Purchases were all made f.o.b. shipping point. CBC paid freight charges of $9,000. Merchandise with an invoice amount of $4,000 was returned for credit. Cost of goods sold for the year was $316,000. CBC uses a perpetual inventory system.

Assume instead that (a) freight costs were paid by the vendor, (b) no discounts were taken, and (c) the merchandise on hand at the beginning of 2018 was determined by a physical count that failed to realize that $10,000 of merchandise was being held on consignment for Frosting R Us Inc. What is cost of goods available for sale, assuming CBC uses the gross method to record purchase discounts?

$337,000.

$318,000.

$321,480.

$327,000.

Explanation / Answer

$318,000

Workings:

Beginning inventory $52,000

Inventory purchased $280,000

Merchandize returned $(4,000)

Inventory wrongly included $(10,000)

Cost of goods available for sale $ 318,000

Freight cost (paid by vendor) and discounts are not considered. The beginning inventory was overvalued by $10,000 (not part of CBC's inventory) which has to be reduced.

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