Gotham City acquires $25,000 of inventory on November 1,2007,having held no inventory previously.On December 31,2007,the end of Gotham City's fiscal year,a physical count shows $8,000 still in stock.During 2008,$6,500 of this inventory is used,resulting in a $1,500 remaining balance of supplies on December 31,2008.
-Based on the preceding information,which of the following would be the correct account balances for 2007 if Gotham City used the purchase method of accounting for inventories?

Question

Quizplus · Accepted Answer

Under the purchase method of accounting, the cost of goods sold is calculated by subtracting the ending inventory balance from the cost of the goods purchased during the year. 
For 2007: 
Cost of goods purchased = $25,000 
Ending inventory = $8,000 
Cost of goods sold = $25,000 - $8,000 = $17,000 
Therefore, the correct balance for the inventory account as of December 31, 2007, is $8,000. 
Option D is the only one that reflects this balance for inventory.

Gotham City Acquires $25,000 of Inventory on November 1,2007,having Held