Question

3. Cost of goods sold is computed from the following equation: a. sales - cost of goods purchased + beginning inventory - ending inventory. b. beginning . beginning inventory + ending inventory - cost of goods purchased. c. beginning inventory + cost of goods purchased - ending inventory. d. beginning inventory - cost of goods purchased + ending inventory. 0 Cleese Company sells merchandise on account for $10,000 to Langston Company with credit terms of 3/10, n/30. Langston Company returns $1,000 of merchandise that was damaged, along with a check to settle the account within the discount period. What is the amount of the check? a. $8,700 b. $8,800 c. $8,730 d. $9.700

Answer 1

Answer 5)

Cost of Goods Sold: It is the cost of acquisition is goods sold and is calculated by deducting the value of inventory at the end from the Cost of goods available for sale.

Cost of Goods Sold = Cost of Goods available for sale – ending inventory        .......... Equation 1

Also,

Cost of goods available for sale = beginning inventory + cost of goods purchased

By putting the value of cost of goods available for sale in Equation 1 above we get

Cost of Goods Sold = (beginning inventory + cost of goods purchased) - ending inventory

Therefore the correct answer for cost of goods sold is Option (c )

Cost of Goods Sold = beginning inventory + cost of goods purchased - ending inventory

Answer 6)

Calculation of Net amount to settled the obligation within the discounted period

Gross value of merchandise sold by Cleese Company to Langston Company= $ 10,000

Value of damaged merchandise returned by Langston Company to Cleese Company= $ 1,000

Net amount payable by Langston Company (before discount) = (Gross value of goods sold – value of damaged goods returned)

Net amount payable by Langston Company (before discount) = $ 10,000 - $ 1,000

                                                                                                               = $ 9,000

Since, Langston Company will settled within discounted period, amount payable via check is :

Net Amount Payable = Value of Sales-Value of Sales Return – Amount of discount

Net Amount Payable= $ 10,000 - $ 1,000 - $ 270

Net Amount Payable = $ 8,730.

Therefore the correct answer of the gives question is Option (c ) $ 8,730   

Working Note: Calculation of amount of discount

Terms of credit: 3/10, n/30

The above terms of credit provided by Cleese Company implies that Langston Company pays the entire amount within 10 days from the date of sale of merchandise, a discount of 3% of the Net amount payable (before discount) will be allowed, Else Net amount payable (before discount) will have to be settled within 30 days from the date of sale of merchandise.         

Amount of discount = (Value of Sales – Value of Sales return) X 3%

                                     = ($ 10,000 - $ 1,000) X 3%

                                     = $ 9,000 X 3%

Amount of discount = $ 270.