Purchase Discounts and Inventory
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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.
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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.
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The solution examines purchase discounts and inventory invoice prices.
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