Audio Corporation purchased $20,000 of DVDs during the current year. The company had DVD inventory of $15,000 at the beginning of the year. An end of the year audit revealed that the company had DVD inventory of $10,000. What amount would be reported as cost of goods sold in the income statement for the current year.

The answer is: $25000

Explanation:

The cost of goods sold is determined by deducting the closing inventory balance from the opening inventory balance and the inventory purchased during the current period. Audio Corporation had $15,000 as the opening balance of its DVDs inventory account, $20,000 of inventory was purchased during the year and at year end, the DVD inventory was less $25,000 worth of DVDs.

The cost of goods sold is therefore calculated as follows:

Opening balance:  $15,000

Purchases:             $20,000

Finished goods:    ($25,000)

Closing balance:    $10,000

$25,000 would be reported as cost of goods sold, assuming DVDs are the only goods that Audio Corporation sells.

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