Gross Method of Recording Inventory
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Outback Furriers started in 2003 with $94,000 of merchandise inventory on hand. During 2003 $400,000 in merchandise was purchased on account with terms 1/15 n/45. All discounts were taken. Purchases were all made f.o.b. shipping point. Outback paid freight charges of $6000. Merchandise with an invoice amount of $5000 was returned for credit. Cost of goods sold for the year was $380,000. Outback uses a perpetual inventory system.
1. Assuming that Outback uses the gross method to record purchases what is the ending inventory? Cost of goods available for sale?
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Solution Summary
The solution explains the calculation of ending inventory and goods available for sale when the inventory is recorded using the gross method under perpetual system.
Solution Preview
We need to find out what has been the total value of purchases.
Gross Purchase is 400,000. The terms 1/15 n/45 mean that there is a cash discount of 1% if payment is made within 15 days ...
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