Purchase Solution

# Questions

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5. When is cost of goods sold determined in a perpetual inventory
system?

24. In the following separate mini cases, using a periodic inventory
system, identify the item(s) designated by letter.
(a) Purchases _ X _ Y _ Net purchases.
(b) Cost of goods purchased _ Net purchases _ X.
(c) Beginning inventory _ X _ Cost of goods available
for sale.
(d) Cost of goods available for sale _ Cost of goods
sold _ X.

25. "The key to successful business operations is effective inventory
management." Do you agree? Explain.

29. Brim Hat Shop received a shipment of hats for which it
paid the wholesaler \$2,940. The price of the hats was
\$3,000 but Brim was given a \$60 cash discount and required
to pay freight charges of \$80. In addition, Brim
paid \$130 to cover the travel expenses of an employee
who negotiated the purchase of the hats. What amount
will Brim record for inventory? Why?

##### Solution Preview

5. When is cost of goods sold determined in a perpetual inventory system?
<br>In this system, detailed records of the cost of each inventory purchase and sale are maintained, the accounting records continuously - perpetually - show the quantity and cost of inventory that should be on hand at any time.
<br>
<br>Under a perpetual inventory system, the cost of goods sold is determined each time a sale occurs.
<br>
<br>24.
<br>(a) X = Purchase returns and allowances
<br> Y = Purchases discounts
<br>(We need to subtract the gross purchases with any returns of unwanted goods, and the result is Net Purchases)
<br>
<br>(b) X = Freight-In
<br>(Freight charges are a necessary cost incurred to acquired inventory, freight-in is added to net purchases at arrive cost of goods purchased)
<br>
<br>(c) X = Cost of goods purchased
<br>(Add the cost of goods purchased to the cost of ...

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