During the year, Carla's Pet Shop's merchandise inventory decreased by $40,000. If the company's cost of goods sold for the year was $600,000, purchases must have been

Question

Quizplus · Accepted Answer

To find the purchases, we need to use the formula: Beginning Inventory + Purchases - Ending Inventory = Cost of Goods Sold
If the inventory decreased by $40,000, it means that the Ending Inventory is $40,000 less than the Beginning Inventory. So we can rewrite the formula as follows:
Beginning Inventory + Purchases - (Ending Inventory - $40,000) = Cost of Goods Sold
Simplifying the equation, we get:
Beginning Inventory + Purchases - Ending Inventory + $40,000 = Cost of Goods Sold
We know that the Ending Inventory decreased by $40,000, but we don't know its starting value, so we cannot determine the exact value of Purchases or Beginning Inventory. However, we can make an estimation by assuming that the Beginning Inventory and Cost of Goods Sold are roughly equal (which is common in retail businesses), so we can use $600,000 as an estimate for Beginning Inventory. Substituting this value into the equation, we get:
$600,000 + Purchases - (Ending Inventory - $40,000) = $600,000
Simplifying the equation again, we get:
Purchases = Ending Inventory - $40,000
We don't know the exact value of Ending Inventory either, but we know that it decreased by $40,000, so we can estimate Ending Inventory as $640,000 (which is $40,000 less than if it had remained constant). Substituting this value into the equation, we get:
Purchases = $640,000 - $40,000 = $600,000
Therefore, the answer is B) $560,000.

During the Year, Carla's Pet Shop's Merchandise Inventory Decreased by $40,000