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Q17SE

Expert-verified
Horngren'S Financial And Managerial Accounting
Found in: Page 299

Short Answer

M Wholesale Company began the year with merchandise inventory of $5,000. During the year, M purchased $93,000 of goods and returned $6,600 due to damage. M also paid freight charges of $1,200 on inventory purchases. At year-end, M’s ending merchandise inventory balance stood at $17,200. Assume that M uses the periodic inventory system. Compute M’s cost of goods sold for the year.

Answer

The cost of goods sold is $75,400.

See the step by step solution

Step by Step Solution

Step 1: Meaning of Cost of Goods Sold

In accounting, the cost of goods sold denotes the amount of money a business spends to sell its goods. It includes the cost of inventories available, inventories purchases during the year, and excludes the inventory left at the end of the period.

Step 2: Computation of cost of goods sold

Particulars

Amounts ($)

Opening inventory

5,000

Add: Purchases

93,000

Less: Goods returned

(6,600)

Add: Freight charges

1,200

Less: Closing inventory

17,200

Cost of goods sold

75,400

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