Q17SE - Horngren'S Financial And Managerial Accounting

Question

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.

Step-by-Step Solution

Answer

Answer

The cost of goods sold is $75,400.

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