Question

1. Northwest Fur Co. started the year with $93,000 of merchandise inventory on hand. During the year, $430,000 in merchandise was purchased on account with credit terms of 1/15, n/45. All discounts were taken. Northwest paid freight-in charges of $8,000. Merchandise with an invoice amount of $4,700 was returned for credit. Cost of goods sold for the year was $374,000. What is ending inventory?

2. Which inventory cost flow assumption generally results in the lowest reported amount for inventory when inventory costs are rising?

Answer 1

1.

Beginning inventory = $93,000

Purchase = $430,000

Purchase terms = 1/15, n/45

Purchase discount = 430,000 x 1/100

= $4,300

Freight in = $8,000

Purchase returns = $4,700

Cost of goods sold = $374,000

Ending inventory = ?

Cost of goods sold = Beginning inventory + Purchase - Purchase discount - Purchase returns + Freight in - Ending inventory

374,000 = 93,000+430,000-4,300-4,700+8,000- Ending inventory

Ending inventory = $148,000

2.

In case of last in fist out (LIFO) method, lowest inventory is reported when inventory costs are rising.