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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


Merchandise inventory, December 31, 2016


Invoice cost of merchandise purchase, gross amount


Shrinkage determined on December 31, 2017


Cost of transportation in


Cost of merchandise returned by customer and restored to inventory


Purchase discount received


Purchase return and allowances



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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