B is corrent. The basic cost of goods sold formula is
Beg. inv. + Net Purchases – End. inv. = CGS
To compute cost of goods sold from the information given, cash paid for purchases must be adjusted for increases (decreases) in both accounts payable and merchandise inventory. Cash payments for purchases during year 1 were $580,000. In addition, accounts payable increased by $50,000, indicating that total purchases exceeded cash payments for purchases by $50,000. Merchandise inventory decreased by $20,000, which means beginning inventory exceeded ending inventory by $20,000. This decrease in inventory must be added to cash payments for purchases to compute the cost of goods sold of $650,000.
| Cash paid for purchases | $580,000 |
| + Increase in AP | 50,000 |
| + Decrease in inv | 20,000 |
| Cost of goods sold | $650,000 |
A is incorrect. The basic cost of goods sold formula is
Beg. inv. + Net Purchases – End. inv. = CGS
To compute cost of goods sold from the information given, cash paid for purchases must be adjusted for increases (decreases) in both accounts payable and merchandise inventory. Cash payments for purchases during year 1 were $580,000. In addition, accounts payable increased by $50,000, indicating that total purchases exceeded cash payments for purchases by $50,000. Merchandise inventory decreased by $20,000, which means beginning inventory exceeded ending inventory by $20,000. This decrease in inventory must be added to cash payments for purchases to compute the cost of goods sold of $650,000.
| Cash paid for purchases | $580,000 |
| + Increase in AP | 50,000 |
| + Decrease in inv | 20,000 |
| Cost of goods sold | $650,000 |
C is incorrect. The basic cost of goods sold formula is
Beg. inv. + Net Purchases – End. inv. = CGS
To compute cost of goods sold from the information given, cash paid for purchases must be adjusted for increases (decreases) in both accounts payable and merchandise inventory. Cash payments for purchases during year 1 were $580,000. In addition, accounts payable increased by $50,000, indicating that total purchases exceeded cash payments for purchases by $50,000. Merchandise inventory decreased by $20,000, which means beginning inventory exceeded ending inventory by $20,000. This decrease in inventory must be added to cash payments for purchases to compute the cost of goods sold of $650,000.
| Cash paid for purchases | $580,000 |
| + Increase in AP | 50,000 |
| + Decrease in inv | 20,000 |
| Cost of goods sold | $650,000 |
A is incorrect. The basic cost of goods sold formula is
Beg. inv. + Net Purchases – End. inv. = CGS
To compute cost of goods sold from the information given, cash paid for purchases must be adjusted for increases (decreases) in both accounts payable and merchandise inventory. Cash payments for purchases during year 1 were $580,000. In addition, accounts payable increased by $50,000, indicating that total purchases exceeded cash payments for purchases by $50,000. Merchandise inventory decreased by $20,000, which means beginning inventory exceeded ending inventory by $20,000. This decrease in inventory must be added to cash payments for purchases to compute the cost of goods sold of $650,000.
| Cash paid for purchases | $580,000 |
| + Increase in AP | 50,000 |
| + Decrease in inv | 20,000 |
| Cost of goods sold | $650,000 |
