The following information was taken from the 20B income statement of Milburn Company: Pretax profit, $12,000; Total operating expenses (not including income taxes), $20,000; Sales revenue, $120,000; Beginning inventory, $8,000; and Purchases,
$90,000. Compute the amount of the ending inventory.
A) $18,000
B) $10,000
C) $88,000
D) $8,000

Question

Quizplus · Accepted Answer

Using the formula: Cost of goods sold = Beginning inventory + Purchases - Ending inventory.
We can rearrange it to solve for the ending inventory:
Ending inventory = Beginning inventory + Purchases - Cost of goods sold.
First, we need to calculate the cost of goods sold:
Sales revenue - Cost of goods sold - Operating expenses = Pretax profit.
Substituting the given values:
120,000 - Cost of goods sold - 20,000 = 12,000
Cost of goods sold = 88,000
Then, we can calculate the ending inventory:
Ending inventory = 8,000 + 90,000 - 88,000
Ending inventory = 10,000. 
Therefore, the correct answer is B) $10,000.

The Following Information Was Taken from the 20B Income Statement