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Northwest Fur Co. started the year with $94,000 of merchandise inventory on hand. During the year, $415,000 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 $373,000. What is ending inventory?

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Answer:

The answer is: The ending inventory is $135,197

Explanation:

  • Initial inventory $94,000
  • Purchased merchandise $414,197

(($415,000 (purchase price) - $4,700 (returned merchandise)) x 99%) + $8,000 (freight charges) = ($410,300 x 99%) + $8,000 = $406,197 + $8,000 = $414,197

  • Cost of goods sold $373,000

To calculate the ending inventory we can use the following formula:

Ending inventory = initial inventory + purchased merchandise - COGS

Ending inventory = $94,000 + $414,197 - $373,000 = $135,197

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