Mountain Mabel’s is a small general ‘store located just outside of Yellowstone National Park. The store uses a periodic inventory system. Every January 1. Mabel and her husband close the Store and take a complete store and lake a complete physical inventory while watching the Rose Bow l Parade on television. The inventory balance on January 1 of the prior year was $6,240, and the inventory balance on December 31 was $4,560. Sales were $150,000 during the prior year, and purchases were $74,400.
a. Compute the cost of goods sold for the prior year.
b. Explain why a small business such as this might use the periodic inventory system.
c. Explain some of the disadvantages of the periodic system to a larger business, such as a Sears store.
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