Question

Northwest Fur Co. started 2016 with $94,000 of merchandise inventory on hand. During 2016, $400,000 in merchandise was purchased on account with credit terms of 1/15, n/45. All discounts were taken. Purchases were all made f.o.b. shipping point. Northwest paid freight charges of $7,500. Merchandise with an invoice amount of $5,000 was returned for credit. Cost of goods sold for the year was $380,000. Northwest uses a perpetual inventory system. Assuming Northwest uses the gross method to record purchases, what is the cost of goods available for sale?
a. $492,500.
b. $496,500.
c. $490,500.
d. $492,550.

Answer 1

Answer:

a. $492,500.

Explanation:

The computation of the cost of goods available for sale is shown below:

= Beginning merchandise inventory + merchandise purchased - returned goods - discount + freight charges

= $94,000 + $400,000 - $5,000 - $3,950 + $7,500

= $492,500

The discount would be

= (Merchandise purchased - returned goods) × discount rate

= ($400,000 - $5,000) × 1%

= $3,950