A firm that uses the perpetual inventory method purchased inventory for $2 000 from a vendor on credit, FOB shipping point, with terms of 2/10, n/30. The firm paid the shipper $100 cash for freight in. The firm paid the vendor 9 days after the sale. Assuming this was the only transaction affecting inventory, and that there was no beginning balance, what is the overall cost of the inventory? All amounts include GST.
A)$2 060.00
B)$2 100.00
C)$2 000.00
D)$1 872.73

Question

Quizplus · Accepted Answer

The cost of inventory includes the purchase price minus any discounts plus freight-in costs. The purchase price is $2,000, and the firm took advantage of the 2% discount for early payment, reducing the cost by $40 ($2,000 * 2%). The freight-in cost of $100 is added to the discounted purchase price of $1,960, resulting in a total inventory cost of $2,060. However, since the amounts include GST, the cost excluding GST is $1,872.73.

A Firm That Uses the Perpetual Inventory Method Purchased Inventory