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 2008 if Gotham City used the purchase method of accounting for inventories?

Question

Quizplus · Accepted Answer

Under the purchase method of accounting for inventories, the cost of goods sold is calculated by subtracting the ending inventory from the cost of goods available for sale. 
Cost of goods available for sale = beginning inventory + purchases 
= $25,000 
Cost of goods sold = $25,000 - $8,000 = $17,000 
Ending inventory = $1,500

Therefore, the correct account balances for 2008 would be: 
Inventory: 
Beginning balance - $8,000 
Purchases - $0 
Ending balance - $1,500

Cost of goods sold: 
$17,000

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