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Purchase Discounts and Inventory

23. The use of a Purchase Discounts account implies that the recorded cost of a purchased inventory item is its
a. invoice price.

b. invoice price plus any purchase discount lost.

c. invoice price less the purchase discount taken.

d. invoice price less the purchase discount allowable whether taken or not.

24. The following information was derived from the 1998 accounting

records of Klein Co.:

Klein's Klein's Goods

Central Warehouse Held by Consignees

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Beginning inventory $130,000 $14,000

Purchases 575,000 70,000

Freight-in 10,000

Transportation to

consignees 5,000

Freight-out 30,000 8,000

Ending inventory 145,000 20,000

Klein's 1998 cost of sales was

a. $570,000.

b. $600,000.

c. $634,000.

d. $639,000.


During 1998, which was the first year of operations, Kandee Company

had merchandise purchases of $985,000 before cash discounts. All

purchases were made on terms of 2/10, n/30. Three-fourths of the

items purchased were paid for within 10 days of purchase. All of

the goods available had been sold at year end.

25. Went Distribution Co. has determined its December 31, 1998 inventory

on a FIFO basis at $250,000. Information pertaining to that

inventory follows:

Estimated selling price $255,000

Estimated cost of disposal 10,000

Normal profit margin 30,000

Current replacement cost 225,000

Went records losses that result from applying the lower of cost or

market rule. At December 31, 1998, the loss that Went should

recognize is

a. $0.

b. $5,000.

c. $20,000.

d. $25,000.

Solution Summary

The solution examines purchase discounts and inventory invoice prices.