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Accounting

27th Edition
WARREN + 5 others
ISBN: 9781337272094

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BuyFindarrow_forward

Accounting

27th Edition
WARREN + 5 others
ISBN: 9781337272094
Textbook Problem

Cost of merchandise sold

Identify the errors in the following schedule of the cost of merchandise sold for the year ended May 31, 2018:

Cost of merchandise sold:
Merchandise inventory, May 31, 2018 $ 105,000
Cost of merchandise purchased:
Purchases $1,110,000
Purchases returns and allowances 55,000
Purchases discounts 30,000
Freight in (22,000)
Total cost of merchandise purchased 1,173,000
Inventory available for sale $1,278,000
Merchandise inventory, June 1, 2017 91,300
Cost of merchandise sold before estimated returns $1,186,700
Increase in estimated returns inventory 43,300
Cost of merchandise sold $1,230,000

To determine

Cost of goods sold indicates the costs involved for the inventory sold by the business in a specific period of time. Its mathematical representation is as below:

Cost of Goods Sold=Beginning Inventory+PurchasesEnding Inventory

To Identify: The errors in the schedule of cost of merchandise sold of the company.

Explanation

  • Merchandise inventory on May 31, 2018 should be deducted from cost of merchandise available for sale, and the schedule should start with the beginning merchandise inventory on June 30, 2017.
  • Purchase returns and allowances and purchase discount should be deducted from purchases rather added.
  • Freight-In should be added to purchases rather deducted.
  • Merchandise inventory on June 30, 2017 should be taken to start the schedule of cost of merchandise sold, and the merchandise inventory on May 31, 2018 should be deducted from cost of merchandise available for sale.
  • Increase in estimated returns inventory should be deducted from cost of merchandise sold before estimated returns rather added.

Prepare the correct schedule of cost of merchandise sold of the company.

Company
Cost of Merchandise Sold Section
For The Year Ended May 31, 2018
Particulars Amount($) Amount($)
Merchandise inventory, June 1, 2017  ...

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