Determine the ending balance of the Merchandise Inventory account given the following transactions:
TooDaLoo had a beginning balance of $8,500 in its Merchandise Inventory account. They purchased $45,000 worth of inventory on account from WeeParcel under the credit terms 2/10, n/60. Transportation costs amounted to $700 and the goods were delivered FOB shipping point. TooDaLoo returned $3,000 worth of inventory because it arrived damaged and paid for the remaining inventory within the discount period. TooDaLoo sold inventory costing $17,500 for $62,000 under the credit terms 2/5, n/15. Transportation costs amounted to $900 and the goods were delivered FOB destination. The buyers paid TooDaLoo within the discount period.
$16,550
please
=>Merchandise inventory-BB : 8500
They purchased $45,000 worth of inventory on account from WeeParcel under the credit terms 2/10, n/60.
=>purchases 45000
Account payable 45000
Transportation costs amounted to $700 and the goods were delivered FOB shipping point
=> Buyer pays for Freight in
=> Freight in 700
Cash 700
TooDaLoo returned $3,000 worth of inventory because it arrived damaged and paid for the remaining inventory within the discount period
=> Account payable 3000
Purchases returns and allowances
3000
TooDaLoo sold inventory costing $17,500 for $62,000 under the credit terms 2/5, n/15
=> Account Receivable 62000
Sales Revenue 62000
cost of good sold 17500
Merchandise inventory 17500
Transportation costs amounted to $900 and the goods were delivered FOB destination=> Seller pays
Freight in 900
Cash 900
The buyers paid TooDaLoo within the discount period
=> Cash 17150
sales discount 350
A/R 17500
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To determine the ending balance of the Merchandise Inventory account, we need to keep track of the various transactions and calculate their impact on the account.
1. Beginning balance: $8,500
This is the starting balance of the Merchandise Inventory account.
2. Purchase of inventory on account from WeeParcel: $45,000
When inventory is purchased on account, it increases the Merchandise Inventory account. In this case, it will increase by $45,000.
3. Transportation costs: $700
Transportation costs associated with the purchase are not directly added to the Merchandise Inventory account. Instead, they are typically recorded in a separate account like "Transportation-in." So for now, we will not consider the impact of transportation costs on the Merchandise Inventory account.
4. Return of damaged inventory: $3,000
When inventory is returned due to damage, it reduces the Merchandise Inventory account. In this case, it will reduce by $3,000.
5. Payment within the discount period
Since the payment for the remaining inventory was made within the discount period (2/10, n/60), there will be a reduction in the amount owed. To calculate the reduction, we need to determine the amount of the discount. In this case, the discount is 2% of $42,000 ($45,000 - $3,000). Therefore, the discount is $840 (2% of $42,000). So the payment within the discount period will reduce the amount owed by $840.
6. Sale of inventory on account: $62,000
When inventory is sold on account, it reduces the Merchandise Inventory account. In this case, it will reduce by the cost of the inventory sold, which is $17,500.
7. Transportation costs: $900
Similar to the purchase, transportation costs associated with the sale are not directly added to the Merchandise Inventory account. Instead, they are typically recorded in a separate account like "Transportation-out." So we need not consider the impact of transportation costs on the Merchandise Inventory account.
8. Payment within the discount period
Since the buyers paid within the discount period (2/5, n/15), there will be a reduction in the amount owed. To calculate the reduction, we need to determine the amount of the discount. In this case, the discount is 2% of $62,000. Therefore, the discount is $1,240 (2% of $62,000). So the payment within the discount period will reduce the amount owed by $1,240.
Now, let's calculate the ending balance of the Merchandise Inventory account:
Beginning balance: $8,500
(+) Purchase of inventory: $45,000
(-) Return of damaged inventory: $3,000
(-) Payment within the discount period for the remaining inventory: $840
(-) Cost of inventory sold: $17,500
(-) Payment within the discount period for the sale: $1,240
Ending balance of the Merchandise Inventory account: $31,920
Therefore, the ending balance of the Merchandise Inventory account is $31,920.