NorthFur Co., started 2021 with $94,000 of merchandise inventory on hand. During 2021, $400,000 in merchandise was purchased on account with credit terms of 1/15, n/45. All discounts were taken. Purchases were all made f. o.b. shipping point. Freight charges were $7,500. Merchandise with an invoice amount of $5,000 was returned for credit. Cost of goods sold for the year was $380,000. The company uses a perpetual inventory system. What is ending inventory using the gross method to record purchases ?

$112,550

Explanation:

The gross profit method of calculating ending inventory estimates the first determines the cost of goods available for sale.

The cost of goods available for sale is equal beginning inventory plus net purchases.

Beginning inventory is $94,000.00

Net purchases= Purchases +  returns - discounts allowed  + purchases

if all discounts were taken, payment was made with 15 days meaning a 1% discount was given.

Net purchases =$400,000 - 5000-(1% of $400,000-$5000)

 =$395,000- (0.01 x 395,000)

 $395,000-3950 + 7500

Net purchases =$398,550

Cost of goods available for sale

= $398,550 +$94,000

=$492,550

If the cost of cost sold was $380,000

The ending inventory will be costs of goods available for sale - cost of goods sold

=$492,550 - $380,000

=$112,550