Question

Calculation of Cost of Goods Sold: Periodic Inventory System with Sales Returns and Allowances

The following amounts are known for Adams Gift Shop:

Beginning merchandise inventory $27,000
Ending merchandise inventory 22,000
Purchases 78,000
Purchases returns and allowances 3,900
Purchases discounts 6,000
Freight-in 350

Assume the business makes estimates for sales returns and allowances at year-end. The balances for estimated returns inventory are shown. Beginning estimated returns inventory $2,000 Ending estimated returns inventory 1,600 Prepare the cost of goods sold section of the income statement.

Answer 1

Answer:

 73,450  COGS

Explanation:

From the beginning inventory we add up purchase and freight cost and subtract the return made to the suplier and discount and allowance granted.

This will be the total cost available for sale.

Then we subtract the ending inventory to get the COGS

  27,000 beginning inventory

+ 78,000 purchases

+      350 freight-in

-   3,900 return and allowance

-   6,000 discount  

 95,450   good available for sale

- 22,000 ending inventory

 73,450  COGS

The sales return impact the sales revenue not the COGS