During the year, Carla's Pet Shop's merchandise inventory decreased by $30,000.If the company's cost of goods sold for the year was $450,000, purchases must have been

Question

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The merchandise inventory decreased by $30,000 during the year, which means that the cost of goods sold was $30,000 higher than the purchases made during the year.

We can use the formula:

Cost of goods sold = Beginning inventory + Purchases - Ending inventory

to solve for purchases, given that we know the cost of goods sold and the decrease in inventory.

Rearranging the formula, we get:

Purchases = Cost of goods sold - Beginning inventory - Ending inventory

We don't know the beginning inventory or ending inventory, but we know that the ending inventory must have decreased by $30,000 as well (since this is the same amount as the decrease in merchandise inventory).

Therefore, we can simplify the formula to:

Purchases = Cost of goods sold - Ending inventory - Decrease in inventory
Purchases = $450,000 - Ending inventory - $30,000
Purchases = $420,000 - Ending inventory

Since we don't know the value of ending inventory, we can't calculate an exact value for purchases. However, we do know that purchases must be lower than $420,000 (since if ending inventory was $0, then purchases would be $420,000).

Therefore, the best choice is B ($420,000).

During the Year, Carla's Pet Shop's Merchandise Inventory Decreased by $30,000.If