A company that uses the perpetual inventory system purchased 500 pallets of industrial soap for 10,000 and paid 750 for the freight in. The company sold the whole lot to a supermarket chain for 14,000 on account. The company uses the specific identification method of inventory costing. Which of the following entries correctly records the cost of goods sold?

A.

cost of goods sold 10,750

merchandise inventory 10,750

B.

merchandise inventory 10,750

cost of goods sold 10,750

C.

cost of goods sold 10,000

sales revenue 10,000

D.

cost of goods sold 10,000

merchandise inventory 10,000

The correct option is A:

cost of goods sold 10,750

merchandise inventory 10,750

Explanation:

When goods are bought for resale, the total cost of the goods bought is usually the invoice price paid as well as the cost of bringing in the goods i. e freight, hence the cost of the goods sold here is the invoice price of $10,000 plus the freight of $750, giving total cost of $10,750

When the goods are sold, merchandise inventory would be credited with $10,750 while cost of goods sold is debited with same amount.

The correct option is first one with cost of goods sold debited with $10.750 and merchandise inventory credited for $10,750