In 2013, a company's records contained the following information about inventory. The company uses a periodic inventory system and records purchases using the net method. $\begin{array} { | l | l | }
\hline \text { Beginning inventory (at net) } & \$ 160 \
\hline \text { Purchases (at invoice price) } & 200 \
\hline \text { Purchase terms, 5/10, n/30 Purchase returns (at invoice price) } & 20 \
\hline \text { Discounts lost } & 10 \
\hline \text { Ending inventory (at net) } & 66 \
\hline
\end{array}$
What was the amount of 2013 cost of goods sold?
A) $274
B) $265
C) $264
D) $255

Question

In 2013, a company's records contained the following information about inventory. The company uses a periodic inventory system and records purchases using the net method. $\begin{array} { | l | l | } 
\hline \text { Beginning inventory (at net) } & \$ 160 \
\hline \text { Purchases (at invoice price) } & 200 \
\hline \text { Purchase terms, 5/10, n/30 Purchase returns (at invoice price) } & 20 \
\hline \text { Discounts lost } & 10 \
\hline \text { Ending inventory (at net) } & 66 \
\hline
\end{array}$
 What was the amount of 2013 cost of goods sold?
A) $274
B) $265
C) $264
D) $255

Quizplus · Accepted Answer

The cost of goods sold (COGS) can be calculated as follows: Beginning Inventory + Purchases (net of returns and including discounts lost) - Ending Inventory. Here, the calculation is $160 + ($200 - $20 - $10) - $66 = $160 + $170 - $66 = $330 - $66 = $264. However, since the company uses the net method, the discounts should be considered as part of the purchase cost, making the correct calculation $160 + ($200 - $20 + $10) - $66 = $160 + $190 - $66 = $284 - $66 = $218. It appears there was a mistake in my initial explanation, leading to confusion. The correct approach to find the COGS under the net method should account for the net purchases (after discounts and returns) plus the beginning inventory minus the ending inventory. Given the error in the calculation process and the options provided, the intended correct calculation aligns with none of the options directly due to the misinterpretation of how discounts lost are treated in the net method. The correct calculation should adjust the purchases for returns and include the discounts lost, as they are an expense that increases the cost of purchases.

In 2013, a Company's Records Contained the Following Information About