Identify the errors in the following schedule of the cost of merchandise sold for the year ended May 31, 2018:

Identify the errors in the following schedule of the cost of merchandise sold for the year ended May 31, 2018:

Cost of merchandise sold: Merchandise inventory, May 31, 2018  . . . . . . . . . . . . . . . . . $    105,000 Cost of merchandise purchased: Purchases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $1,110,000 Purchases returns and allowances . . . . . . . . . . . . . . . . . . 55,000 Purchases discounts  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30,000 Freight in  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .       (22,000) Total cost of merchandise purchased . . . . . . . . . . . .   1,173,000 Inventory available for sale  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $1,278,000 Merchandise inventory, June 1, 2017  . . . . . . . . . . . . . . . . . . . . .        91,300 Cost of merchandise sold before estimated returns . . . . . . . . $1,186,700 Increase in estimated returns inventory . . . . . . . . . . . . . . . . . . . 43,300 Cost of merchandise sold . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $1,230,000

Answer:

1. The schedule should begin with the June 1, 2017, not the May 31, 2018, 

merchandise inventory.

2. Purchases returns and allowances and purchases discounts should be deducted 

from (not added to) purchases.

3. Freight in should be added to (not deducted from) purchases.

4. The merchandise inventory at May 31, 2018, should be deducted from inventory

available for sale to yield cost of merchandise sold before estimated returns.

5. The estimated returns for the year of $43,300 should be deducted from cost of

merchandise sold before estimated returns to yield cost of merchandise sold.

A correct cost of merchandise sold section is as follows:

Cost of merchandise sold:

Merchandise inventory, June 1, 2017$ 91,300

Cost of merchandise purchased:

Purchases$1,110,000

Purchases returns and allowances (55,000)

Purchases discounts(30,000)

Net purchases$1,025,000

Freight in22,000

Cost of merchandise purchased1,047,000

Merchandise available for sale$1,138,300

Merchandise inventory, May 31, 2018(105,000)

Cost of merchandise sold before estimated returns $1,033,300

Increase in estimated returns inventory(43,300)

Cost of merchandise sold$ 990,000