Bill Rose owns Rose Sporting Goods. At the beginning of the year, Rose Sporting Goods had $2,600 in inventory. During the year, Rose Sporting Goods purchased inventory that cost $13,200. At the end of the year, inventory on hand amounted to $3,800.

Required:

a. Cost of goods available for sale during the year.

b. Cost of goods sold for the year.

c. Amount of inventory would Rose Sporting Goods report on the year-end balance sheet.

a. $15,800

b. $12,000

c. $3,800

Explanation:

The movement in the balance of inventory at the start and end of a period is as a result of sales and purchases. While sales reduces the balance in inventory, purchases increases the balance. This may be expressed mathematically as

Opening balance + purchases - cost of goods sold = closing balance

The opening balance added to the purchases gives the amount of goods available for sale.

Cost of goods available for sale during the year

= $2,600 + $13,200

= $15,800

$2,600 + $13,200 - cost of goods sold = $3,800

Cost of goods sold = $2,600 + $13,200 - $3,800

= $12,000

The ending inventory balance is reflected in the balance sheet.