Cost of goods purchased, cost of goods sold, and income...

Cost of goods purchased, cost of goods sold, and income statement. The following data are for Arizona Retail Outlet Stores. The account balances (in thousands) are for 2017 . Marketing and advertising costs $\quad$ $\$ 55,200$ Merchandise inventory, January 1, 2017 $\quad$ 103,500 Shipping of merchandise to customers $\quad$ 4,600 Depreciation on store fixtures $\quad$ 9,660 Purchases $\quad$ 598,000 General and administrative costs $\quad$ 73,600 Merchandise inventory, December 31, 2017 $\quad$ 119,600 Merchandise freight-in $\quad$ 23,000 Purchase returns and allowances $\quad$ 25,300 Purchase discounts $\quad$ 20,700 Revenues $\quad$ 736,000 1. Compute (a) the cost of goods purchased and (b) the cost of goods sold. 2. Prepare the income statement for 2017

Cost of goods purchased, cost of goods sold, and income statement. The following data are for Arizona Retail Outlet Stores. The account balances (in thousands) are for 2017 .
Marketing and advertising costs $\quad$ $\$ 55,200$
Merchandise inventory, January 1, 2017 $\quad$ 103,500
Shipping of merchandise to customers $\quad$ 4,600
Depreciation on store fixtures $\quad$ 9,660
Purchases $\quad$ 598,000
General and administrative costs $\quad$ 73,600
Merchandise inventory, December 31, 2017 $\quad$ 119,600
Merchandise freight-in $\quad$ 23,000
Purchase returns and allowances $\quad$ 25,300
Purchase discounts $\quad$ 20,700
Revenues $\quad$ 736,000
1. Compute (a) the cost of goods purchased and (b) the cost of goods sold.
2. Prepare the income statement for 2017

Key Concepts

Merchandise Inventory

Merchandise inventory represents the cost of goods that a company holds for sale to customers. It is reported as an asset on the balance sheet at two key points in time—beginning-of-period and end-of-period—and the change in inventory levels is essential for calculating the cost of goods sold during the period.

Net Purchases

Net purchases are the total merchandise purchases made during the period after adjusting for factors such as freight-in costs, purchase returns and allowances, and purchase discounts. This calculation provides a more accurate measure of the actual cost incurred in acquiring inventory, establishing the foundation for determining the cost of goods purchased.

Cost of Goods Purchased

The cost of goods purchased is obtained by taking the net purchases and reflects the cost incurred to acquire inventory during the period, exclusive of the previous period’s inventory. It is a core component in the inventory costing process and is later used to compute the overall cost of goods available for sale.

Cost of Goods Sold (COGS)

Cost of goods sold represents the cost directly associated with the goods that were sold during a reporting period. It is typically computed by adding beginning merchandise inventory to the cost of goods purchased and then subtracting the ending merchandise inventory, thus linking inventory valuation with the period’s sales results.

Income Statement

An income statement is a financial report that summarizes a company’s revenues, expenses, and profits over a specific period. It starts with revenues, subtracts the cost of goods sold and operating expenses, and results in the net income or loss, serving as a key indicator of the company’s financial performance during that period.

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