Question

Ranns Supply uses a perpetual inventory system. On January 1, its inventory account had a beginning balance of $6,600,000. Ranns engaged in the following transactions during the year.

Purchased merchandise inventory for $9,500,000.

Generated net sales of $26,000,000.

Recorded inventory shrinkage of $10,000 after taking a physical inventory at year-end.

Reported gross profit for the year of $18,000,000 in its income statement.

a. At what amount was Cost of Goods Sold reported in the company's year-end income statement?

b. At what amount was Merchandise Inventory reported in the company's year-end balance sheet?

c. Immediately prior to recording inventory shrinkage at the end of the year, what was the balance of the Cost of Goods Sold account? What was the balance of the Merchandise Inventory account?

Answer 1

Ans.a	Cost of goods sold   =   Net sales - Gross profit
		26000000 - 18000000
		8000000
Ans.b	Ending invenotry    =       Beginning inventory + Purchase - Cost of goods sold
		6600000 + 9500000 - 8000000
		8100000
Ans.c	The cost of goods sold amount will be reduced by the amount of inventory shrinkage,
	New cost of goods sold =   Cost of goods sold - Inventory shrinkage
		8000000 - 10000
		7990000
	New Ending invenotry    =       Beginning inventory + Purchase - New Cost of goods sold
		6600000 + 9500000 - 7990000
		8110000