question archive A company begins business in June and uses the periodic method
A company begins business in June and uses the periodic method
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A company begins business in June and uses the periodic method. Its June merchandise purchases are $195,000 on account, FOB shipping point. Merchandise that cost $3,000 is returned for credit. Goods that the company sells for $11,000 and that cost $7,000 are returned to the company for cash refunds. On July 6, the company pays a $6,000 freight bill for its June purchases. What is the net cost of the company's June purchases?
a. $192,000
b. $198,000
c. $205,000
d. $209,000
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The net cost of the purchases would included all the costs that are incurred related to the inventory. Net cost is cost of purchases plus freight in minus returns and discounts.
Net cost of purchases = $195,000 - 3,000 + 6,000 = $198,000.
$11,000 is sales return and 7,000 is the cost that will increase inventory. This is excluded because this is not part of the purchases, but inventory on hand of the company.
The correct answer is b. $198,000.
