Question

During the year, Smith & Sons purchased inventory with an invoice price of

$400,000. The company also paid $20,000 freight charges on the inventory, and

returned $50,000 of inventory to the supplier. After the return, the inventory was

paid for in a timely manner, so Smith & Sons took a $10,000 cash discount.

During the year, the company sold $300,000 of the inventory for $525,000. What

is the year-end balance in the company’s inventory account assuming that it

began the year with no inventory on hand?

Select one:

$70,000

$60,000

$50,000

$40,000

Answer 1

Answer is $60,000.

Ending inventory in hand:

Purchase of inventory:              $ 400,000

Add: Freight in:                          $20,000

Less: Purchase returns:             $50,000

Less: Purchase discounts:         $10,000

Net Purchase cost:                    $360,000

Less: Cost of Goods sold:         $300,000

Ending balance of Inventory:    $60,000