The following information was taken from the 20B income statement of Milburn Company: Pretax profit,$12,000; Total operating expenses (not including income taxes),$20,000; Sales revenue,$120,000; Beginning inventory,$8,000; and Purchases,$90,000.Compute the amount of the ending inventory.
A)$8,000
B)$10,000
C)$18,000
D)$88,000

Question

Quizplus · Accepted Answer

The formula for calculating ending inventory is: Beginning inventory + Purchases - Cost of goods sold. 
To calculate Cost of goods sold, we need to subtract Total operating expenses from Sales revenue: 
Cost of goods sold = Sales revenue - Total operating expenses = $120,000 - $20,000 = $100,000

Using the formula for ending inventory: 
Ending inventory = Beginning inventory + Purchases - Cost of goods sold 
Ending inventory = $8,000 + $90,000 - $100,000 
Ending inventory = $10,000

Therefore, the answer is B) $10,000.

The Following Information Was Taken from the 20B Income Statement