Gotham City acquires $25,000 of inventory on November 1,20X7,having held no inventory previously.On December 31,20X7,the end of Gotham City's fiscal year,a physical count shows $8,000 still in stock.During 20X8,$6,500 of this inventory is used,resulting in a $1,500 remaining balance of supplies on December 31,20X8.
-Based on the preceding information,which of the following would be the correct account balances for 20X7 if Gotham City used the consumption method of accounting for inventories?

Question

Quizplus · Accepted Answer

The consumption method of accounting for inventories recognizes the cost of inventory as an expense when the inventory is used. In this case, Gotham City used $6,500 of inventory in 20X8, so the cost of goods sold for 20X8 would be $6,500. The beginning inventory balance was $25,000, and the ending inventory balance was $1,500, so the inventory expense for 20X7 would be $23,500 ($25,000 - $1,500).

Gotham City Acquires $25,000 of Inventory on November 1,20X7,having Held