Financial Statements of ABC Corp. indicates that ending inventory levels in 2005 and 2006 were $200,000 and $350,000 respectively. Cost of Goods sold for 2005 and 2006 were $1,900,000 and $2,200,000 respectively. Purchases in 2006 were:
A) $1,950,000
B) $2,150,000
C) $2,350,000
D) $1,850,000

Question

Quizplus · Accepted Answer

The formula for calculating purchases is: Purchases = Cost of Goods Sold + Ending Inventory - Beginning Inventory. We have the ending inventory values for both years as $200,000 and $350,000 respectively, but we don't have the beginning inventory values. However, we can assume that beginning inventory for 2006 is the ending inventory for 2005, which is $200,000. Therefore, using the formula:
Purchases = $2,200,000 + $350,000 - $200,000
Purchases = $2,350,000
Therefore, the best choice is C.