The following data were extracted from the accounting records of Harkins Company for the year ended April 30, 2019:
Increase in estimated returns inventory $ 11,600
Merchandise inventory, May 1, 2018 380,000
Merchandise inventory, April 30, 2019 415,000
Purchases 3,800,000
Purchases returns and allowances 150,000
Purchases discounts 80,000
Sales 5,850,000
Freight in 16,600
a. Prepare the cost of merchandise sold section of the income statement for the year ended April 30, 2019, using the periodic inventory system.
b. Determine the gross profit to be reported on the income statement for the year ended April 30, 2019.
c. Would gross profit be different if the perpetual inventory system was used instead of the periodic inventory system?
Answer:
a. Cost of merchandise sold:
Merchandise inventory, May 1, 2018$ 380,000
Cost of merchandise purchased:
Purchases$3,800,000
Purchases returns and allowances (150,000)
Purchases discounts(80,000)
Net purchases$3,570,000
Freight in16,600
Total cost of merchandise purchased 3,586,600
Merchandise available for sale$3,966,600
Merchandise inventory, April 30, 2019(415,000)
Cost of merchandise sold before estimated returns $3,551,600
Increase in estimated returns inventory(11,600)
Cost of merchandise sold$3,540,000
b. $2,310,000 ($5,850,000 – $3,540,000)
c. No. Gross profit would be the same if the perpetual inventory system was
used.