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College Accounting, Chapters 1-27

23rd Edition
HEINTZ + 1 other
ISBN: 9781337794756

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Section
BuyFindarrow_forward

College Accounting, Chapters 1-27

23rd Edition
HEINTZ + 1 other
ISBN: 9781337794756
Textbook Problem

Block Foods, a retail grocery store, has agreed to purchase all of its merchandise from Square Wholesalers. In return. Block receives a special discount on purchases. Over recent months, Square noticed that purchases by Block had been falling off. At first, Square simply thought that business might be down for Block and was hopeful that their purchases would pick up. When business with Block did not return to a normal level, Square requested financial statements from Block. Squares records indicate that Block purchased $300,000 worth of merchandise during 20-1, the most recent year.

Selected information taken from Block's financial statements is as follows:

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REQUIRED

Compute net purchases made by Block during 20-1. Does it appear that Block violated the agreement?

To determine

Compute the net purchases and state whether the person B has violated the agreement.

Explanation

Cost of goods sold:

Cost of goods sold is the total of all the manufacturing expenses incurred by a company to sell the goods during the given period.

The beginning inventory is added to purchases for calculating cost of goods that is available for sale. The ending inventory is deducted from cost of goods that is available for sale to calculate cost of goods sold.

Calculate the net purchases:

ParticularsAmount
Cost of goods sold$400,000
Add: increase in inventory (1)$10,000
Net purchases $410,000

Table (1)

Therefore, net purchases are $410,000 and Person B violated the agreement and purchased merchandise of $110,000 from other suppliers...

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