Question

The following information applied to Atlas Co. for the current year:

Merchandise purchased for resale   $800,000

Freight-in                                                 20,000

Freight-out                                             10,000

Purchase allowances                                     4,000

Purchase discount                                           1,000

The company’s current-year inventoriable cost was

Group of answer choices

$815,000

$825,000

$805,000

$816,000

Answer 1

Answer:

Freight In: Is a product cost and to be considered in the valuation.

Freight out: This is generally for delivery of sold goods. So this cost can not be considered in Inventory valuation.

Purchase Allowance: Reduction in purchase value, generally because the goods are faulty or not fit for purpose. So should be considered in Inventory valuation.

Purchase Discount: Promotion for prompt payments or volume of sales. Usually not considered in inventory valuation.

Therefore the cost of Inventory

Merchandise Purchased $800000

Freight In $20000

Purchase allowance -$4000

Total $816000