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17 March, 05:01

Assume that Mitchell Company uses a periodic inventory system and has these account balances: Purchases $600,000; Purchase Returns and Allowances $25,000; Purchases Discounts $11,000; and Freight-in $19,000; beginning inventory of $45,000; ending inventory of $55,000; and net sales of $750,000. Determine the amounts to be reported for cost of goods sold and gross profit.

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  1. 17 March, 05:08
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    Cost of goods sold = $573,000

    Gross Profit = $177,000

    Explanation:

    Data provided in the question:

    Purchases = $600,000

    Purchase Returns and Allowances = $25,000

    Purchases Discounts = $11,000

    Freight-in = $19,000

    Beginning inventory = $45,000

    Ending inventory = $55,000

    Net sales = $750,000

    Now,

    Total Goods Available for Sale =

    Beginning Inventory + Purchases + Freight-In - Purchase Returns and Allowances - Purchases Discounts

    = $45,000 + $600,000 + $19,000 - $25,000 - $11,000

    = $628,000

    Thus,

    Cost of goods sold = Total Goods Available for Sale - ending inventory

    = $628,000 - $55,000

    = $573,000

    Gross Profit = Net sales - Cost of goods sold

    = $750,000 - $573,000

    = $177,000
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