Northwest fur co. started 2013 with $103,000 of merchandise inventory on hand. during 2013, $600,000 in merchandise was purchased on account with credit terms of 4/15, n/45. all discounts were taken. purchases were all made f. o.b. shipping point. northwest paid freight charges of $9,000. merchandise with an invoice amount of $4,500 was returned for credit. cost of goods sold for the year was $370,000. northwest uses a perpetual inventory system.
what is ending inventory assuming northwest uses the gross method to record purchases?
a. $313,680.
b. $313,620.
c. $337,500.
d. $342,000.

The ending inventory by using the gross method in order to record purchases amounts to $313,680. Hence, the correct option is A

Explanation:

Net Purchases = Gross Purchases - Purchase returns - Purchase discount

                         = $600,000 - $4,500 - [($600,000 - $4,500) × 4%]

                         = $595,500 - $23,820

                         = $571,680

Purchases = Net Purchases + Freight inward

                 = $571,680 + $9,000

                 = $580,680

The ending inventory will be computed as:

COGS (Cost of goods sold) = Beginning inventory + Purchases - Ending inventory

               $370,000   =  $103,000 + $580,680 - Ending inventory

Ending inventory = $683,680 - $370,000

                             = $313,680

almost done 23 out of 25

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