Question

Jackson Company reported the following information relating to its
inventory for 2020:

    sales revenue .............................  $427,000
    freight-in ................................    10,980
    purchase returns ..........................    16,590
    cost of goods available for sale ..........   419,250
    purchases .................................   392,800
    gross profit ..............................    96,250
    freight-out ...............................    11,730
    purchase discounts ........................      ?

Jackson Company reported an inventory turnover ratio of 4.20 for 2020.

Calculate the amount of purchase discounts reported by Jackson Company
during 2020.

Answer 1

The answer is $36,940.

Calculations are shown below:

Sales revenue	427000
Less: Gross profit	96250
Cost of goods sold	330750
Cost of goods available for sale	419250
Less: Cost of goods sold	330750
Ending inventory	88500
Cost of goods sold	330750
Divide by: Inventory turnover ratio	4.2
Average inventory	78750

Average inventory = (Beginning inventory + Ending inventory)/2

Or,

Average inventory x 2 = Beginning inventory + Ending inventory

Therefore,

78750 x 2 = Beginning inventory + 88500

Or,

Beginning inventory = (78750 x 2) - 88500 = 69,000

Cost of goods available for sale	419250
Less: Beginning inventory	69000
Net purchases	350250
Purchases	392800
Add: Freight in	10980
Less: Purchase returns	-16590
Less: Net purchases	-350250
Purchase discounts	36940

Therefore, the amount of purchase discounts reported by Jackson Company during 2020 is $36,940.