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Q33E

Expert-verified
Horngren'S Financial And Managerial Accounting
Found in: Page 306

Short Answer

Clink Electric uses the periodic inventory system. Clink reported the following selected amounts at May 31, 2018:

Merchandise Inventory, June 1, 2017 $ 16,000 Freight In $ 6,000

Merchandise Inventory, May 31, 2018 21,500 Net Sales Revenue 138,000

Purchases 81,000 Common Stock 32,000

Purchase Discounts 3,000 Retained Earnings 17,000

Purchase Returns and Allowances 6,600

Compute the following for Clink:

a. Cost of goods sold.

b. Gross profit.

(a) The cost of goods sold of the company is $65,900.

(b) Gross profit of the company is $72,100.

See the step by step solution

Step by Step Solution

Step 1: Meaning of Profit

In accounting, the term profit denotes excess revenues over the expenses. It is computed by taking the difference between revenues generated in one accounting period and expenses incurred to generate such revenues.

Step 2: Computation of cost of goods sold

Particulars

Amounts ($)

Opening inventory

16,000

Add: Net purchases (Working Note)

71,400

Less: Closing inventory

(21,500)

Cost of goods sold

$65,900

Working Note:

Computation of Net purchases:

Step 3: Computation of gross profit

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