Using the annual data for Music World Retail (beginning merchandise inventory $135,000, cost of merchandise purchased $280,000, ending merchandise inventory $150,000), prepare the cost of goods sold section of the income statement for the merchandising business.

What you are building in the income statement

For a merchandising company, the cost of goods sold (COGS) section shows how much inventory was available to sell during the year and how much of that inventory was actually sold.

Fill in the COGS template with the given numbers

Use the standard merchandising formula:

$$\text{COGS} = \text{Beginning Merchandise Inventory} + \text{Net Purchases} - \text{Ending Merchandise Inventory}$$

Music World Retail data:

• Beginning merchandise inventory = $135{,}000
• Cost of merchandise purchased (assume net purchases since no other purchase adjustments are given) = $280{,}000
• Ending merchandise inventory = $150{,}000

Calculate goods available for sale, then COGS

1. Goods available for sale:

$$135{,}000 + 280{,}000 = 415{,}000$$

2. Cost of goods sold:

$$415{,}000 - 150{,}000 = 265{,}000$$

Cost of goods sold section (Music World Retail)

• Beginning merchandise inventory: $135,000
• Add: Cost of merchandise purchased: $280,000
• Goods available for sale: $415,000
• Less: Ending merchandise inventory: $150,000
• Cost of goods sold: $265,000