Computing cost of goods purchased and cost of goods sold....

Computing cost of goods purchased and cost of goods sold. The following data are for Marvin Department Store. The account balances (in thousands) are for 2017 . Marketing, distribution, and customer-service costs $\quad$ $\$ 37,000$ Merchandise inventory, January 1, 2017 $\quad$ 27,000 Utilities $\quad$ 17,000 General and administrative costs $\quad$ 43,000 Merchandise inventory, December 31,2017 $\quad$ 34,000 Purchases $\quad$ 155,000 Miscellaneous costs $\quad$ 4.000 Transportation-in $\quad$ 7,000 Purchase returns and allowances $\quad$ 4,000 Purchase discounts $\quad$ 6,000 Revenues $\quad$ 280,000 1. Compute (a) the cost of goods purchased and (b) the cost of goods sold. 2. Prepare the income statement for 2017.

Computing cost of goods purchased and cost of goods sold. The following data are for Marvin Department Store. The account balances (in thousands) are for 2017 .
Marketing, distribution, and customer-service costs $\quad$ $\$ 37,000$
Merchandise inventory, January 1, 2017 $\quad$ 27,000
Utilities $\quad$ 17,000
General and administrative costs $\quad$ 43,000
Merchandise inventory, December 31,2017 $\quad$ 34,000
Purchases $\quad$ 155,000
Miscellaneous costs $\quad$ 4.000
Transportation-in $\quad$ 7,000
Purchase returns and allowances $\quad$ 4,000
Purchase discounts $\quad$ 6,000
Revenues $\quad$ 280,000
1. Compute (a) the cost of goods purchased and (b) the cost of goods sold.
2. Prepare the income statement for 2017.

Key Concepts

Income Statement

The Income Statement is a financial report that summarizes revenues, cost of goods sold, operating expenses, and other income and expense items over a specific period. For merchandising businesses, this statement is critical as it illustrates the relationship between sales and the costs incurred (including COGS and operating expenses) to determine the net profit or loss for the period.

Transportation-In

Transportation-In, also known as freight-in, refers to the shipping and handling costs incurred to bring goods into the business premises. These costs are considered part of the cost of inventory, as they directly affect the overall cost of purchasing merchandise. By including transportation-in, the total cost of goods purchased is more reflective of the actual expenditure incurred in acquiring inventory.

Purchase Returns, Allowances, and Discounts

Purchase Returns, Allowances, and Discounts are adjustments made to the gross purchases figure. Returns and allowances account for any reductions in cost due to defective or unsatisfactory merchandise, while discounts represent reductions in the purchase price. These adjustments are important for arriving at the net purchases cost, which more accurately reflects the actual cost incurred for merchandise.

Cost of Goods Purchased

Cost of Goods Purchased is a calculation that starts with the total purchased goods and adjusts for purchase-related factors such as transportation-in, returns and allowances, and discounts. This net figure reflects the total cost of merchandise acquired during an accounting period, which in turn is used as a component in the overall cost of goods available for sale.

Merchandise Inventory

Merchandise Inventory represents the goods available for sale that a business holds as an asset, typically recorded as beginning inventory at the start of an accounting period and ending inventory at the period's close. The difference between these figures, along with purchases made during the period, is critical to calculating the cost of goods sold and assessing overall inventory management practices.

Cost of Goods Sold (COGS)

Cost of Goods Sold (COGS) is the total cost of merchandise that has been sold during a specific period. It is calculated by taking the sum of the beginning inventory and the cost of goods purchased, then subtracting the ending inventory. COGS is a key metric in evaluating a company's operational performance and profitability, as it directly relates to revenue generation.

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