Question

The following supplementary records summarize Tesla Company’s merchandising activities for year 2017 (it uses a perpetual inventory system). Set up T-accounts for Merchandise Inventory and Cost of Goods Sold. Then record the summarized activities in those T-accounts and compute account balances.

Cost of merchandise sold to customer in sales transaction	$196,000
Merchandise inventory, December 31, 2016	25,000
Invoice cost of merchandise purchase, gross amount	192,500
Shrinkage determined on December 31, 2017	800
Cost of transportation in	2,900
Cost of merchandise returned by customer and restored to inventory	2,100
Purchase discount received	1,700
Purchase return and allowances	4,000

Short answer

Answer

Balance of merchandise inventory:$20,000.

Balance of cost of goods sold:$194,700.

Step-by-step solution

Step-by-Step SolutionStep 1: Definition of Cost of Goods Sold

The account reported in the income statement representing the cost incurred by a business entity to produce the goods that have been sold is known as the cost of goods sold.

T-accounts