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Q4-8E

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Financial & Managerial Accounting
Found in: Page 210

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Short Answer

The following supplementary records summarize Tesla Company’s merchandising activities for year 2017 (it uses a perpetual inventory system). Set up T-accounts for Merchandise Inventory and Cost of Goods Sold. Then record the summarized activities in those T-accounts and compute account balances.

Cost of merchandise sold to customer in sales transaction

$196,000

Merchandise inventory, December 31, 2016

25,000

Invoice cost of merchandise purchase, gross amount

192,500

Shrinkage determined on December 31, 2017

800

Cost of transportation in

2,900

Cost of merchandise returned by customer and restored to inventory

2,100

Purchase discount received

1,700

Purchase return and allowances

4,000

Answer

Balance of merchandise inventory: $20,000.

Balance of cost of goods sold: $194,700.

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Step by Step Solution

Step-by-Step SolutionStep 1: Definition of Cost of Goods Sold

The account reported in the income statement representing the cost incurred by a business entity to produce the goods that have been sold is known as the cost of goods sold.

Step 2: T-accounts

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