The Office Mart Store In South Beach Experienced The Followi

The Office Mart Store In South Beach Experienced The Following Events

The Office Mart store in South Beach experienced the following events during the current year: 1. Incurred $420,000 in marketing costs. 2. Purchased $1,207,000 of merchandise. 3. Paid $58,000 for transportation-in costs. 4. Incurred $396,000 of administrative costs. 5. Took an inventory at year-end and learned that goods costing $213,000 were on hand. This compared with a beginning inventory of $288,000 on January 1. 6. Determined that sales revenue during the year was $3,153,000. 7. Debited all costs incurred to the appropriate account and credited to Accounts Payable. All sales were for cash. Required: Give the amounts for the following items in the Merchandise Inventory account (Omit the "$" sign in your response).

Paper For Above instruction

Introduction

The calculation of the ending merchandise inventory is a fundamental aspect of financial accounting, especially for retail and wholesale businesses like Office Mart. Accurate inventory valuation impacts gross profit, net income, and overall financial position. This analysis interprets the provided data to determine the relevant inventory figures, focusing on the ending inventory account.

Analysis of Inventory Transactions

To determine the amounts within the merchandise inventory account, it’s essential to understand the flow of inventory during the year. The key elements include beginning inventory, purchases, transportation-in costs, and ending inventory. All these components influence the merchandise inventory balance reported on the financial statements.

Beginning Inventory

At the start of the year, Office Mart's inventory was valued at 288,000. This figure represents the cost of goods available for sale at the year's outset.

Purchases and Transportation-in

During the year, Office Mart purchased merchandise costing 1,207,000. Additionally, transportation-in costs totaling 58,000 were incurred to bring the goods to the store’s inventory. These transportation costs are added to the cost of purchases because they are necessary expenses to acquire and transport the inventory.

The total cost of goods available for sale (before considering ending inventory) is calculated as:

- Purchases: 1,207,000

- Transportation-in costs: 58,000

- Sum of Purchases and Transportation-in costs: 1,265,000

When combined with the beginning inventory, the total goods available for sale is:

- Beginning inventory: 288,000

- Plus Purchases and Transportation-in costs: 1,265,000

- Total goods available for sale: 1,553,000

Cost of Goods Sold and Ending Inventory Calculation

The inventory on hand at year-end is valued at 213,000, which reflects the cost of goods remaining unsold. The cost of goods sold (COGS) is derived by subtracting ending inventory from goods available for sale:

- COGS = Goods available for sale - Ending inventory

- COGS = 1,553,000 - 213,000 = 1,340,000

This calculation allows for complete tracking of inventory flow during the period.

Accounting for Inventory During the Year

All costs incurred, including marketing and administrative expenses, are debited to their respective expense accounts and not directly to inventory. Purchase and transportation-in costs are capitalized into inventory, as per accounting standards for inventory valuation.

Given that all sales were cash sales, the revenue recorded is 3,153,000, but this figure does not directly influence inventory calculations for purposes of calculating ending inventory. The focus remains on purchase and inventory-related costs.

Final Inventory Figures

The critical figures for the merchandise inventory account are:

- Beginning inventory: 288,000

- Purchases: 1,207,000

- Transportation-in: 58,000

- Ending inventory: 213,000

From this, the merchandise inventory account reflects the ending inventory of 213,000 at year-end, and the calculation of COGS aligns with standard inventory management principles.

Conclusion

The inventory account's relevant amounts for the year are the beginning inventory of 288,000, purchases and transportation-in costs totaling 1,265,000, and ending inventory of 213,000. These figures are vital for determining the cost of goods sold, financial position, and profitability of Office Mart. Proper management and accurate recording of these elements ensure reliable financial statements.

References

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  • Everything you need to know about inventory valuation. (2021). Investopedia. https://www.investopedia.com/terms/i/inventory.asp

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