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 purchase method of accounting for inventories?

Question

Quizplus · Accepted Answer

Under the purchase method of accounting for inventories, cost of goods sold is calculated as the cost of goods available for sale minus the ending inventory.

Cost of goods available for sale = Beginning inventory + Purchases = $0 + $25,000 = $25,000

Ending inventory = $8,000

Cost of goods sold = $25,000 - $8,000 = $17,000

Therefore, the correct account balances for 20X7 would be:

- Inventory: $8,000 
- Cost of goods sold: $17,000

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