Question

Cinnamon Buns Co. (CBC) started 2021 with $52,000 of merchandise on hand. During 2021, $280,000 in...

Cinnamon Buns Co. (CBC) started 2021 with $52,000 of merchandise on hand. During 2021, $280,000 in merchandise was purchased on account with credit terms of 2/10, n/30. All discounts were taken. Purchases were all made f.o.b. shipping point. CBC paid freight charges of $9,000. Merchandise with an invoice amount of $4,000 was returned for credit. Cost of goods sold for the year was $316,000. CBC uses a perpetual inventory system.

What is cost of goods available for sale, assuming CBC uses the gross method?

A. 312480

B. 326000

C. 331480

D.337000

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Answer #1

The correct answer is D) $337,000.

Supporting calculations:

Beginning merchandise inventory $52,000
Add: Purchases $280,000
Add: Freight charges under FOB Shipping point $9,000
Less: Merchandise returned ($4,000)
Cost of goods available for sale under gross method $337,000

Buyer is responsible to pay the freight charges under FOB Shipping point so the cost of freight charges will be added to the cost of merchandise purchased.

Therefore, cost of goods available for sale under gross method is $337,000.

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