Question

# The following information for 2016 is available for Marino Company: The beginning inventory is \$109,000. Purchases...

The following information for 2016 is available for Marino Company:

The beginning inventory is \$109,000. Purchases returns of \$4,000 were made.

Purchases of \$300,000 were made on terms of 3/10, n/30. Eighty percent of the discounts were taken.

At December 31, purchases of \$19,000 were in transit, FOB destination, on terms of 3/10, n/30.

The company made sales of \$640,000. The gross selling price per unit is twice the net cost of each unit sold.

Sales allowances of \$9,000 were made.

The company uses the LIFO periodic method and the gross method for purchase discounts.

Required:

Compute the cost of the ending inventory before the physical inventory is taken. Ignore Sales allowances in your computations.

\$

Compute the amount of the cost of goods sold that came from the purchases of the period and the amount that came from the beginning inventory.

Cost of sales from purchases \$288,896

Cost of sales from beginning inventory \$31,104

The total cost of goods sold \$320,000

Beginning Inventory = \$109,000

Purchases less returns = 300,000 - 4,000 = \$296,000

Net purchases = 296,000 - (296,000 * 3% * 80%) = \$288,896

Sales = \$640,000

The gross selling price per unit is twice the net cost of each unit sold.

Therefore, Cost of Goods Sold (COGS) = 640,000 / 2 = \$320,000

COGS = Beginning Inventory + Net purchases - Ending inventory

320,000 = 109,000 + 288,896 - Ending inventory

Ending inventory = \$77,896

2)

Computation of Cost of Goods Sold:

Cost of sales from purchases = \$288,896

Cost of goods sold from beginning inventory = [640,000 - (288,896 * 2)] / 2

= \$31,104

Note:

Purchases in transit is not included in net purchases, since they are FOB shipping.

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