Use the following information for questions 56 and 57.
During 2014, which was the first year of operations, Oswald Company had merchandise purchases of $985,000 before cash discounts. All purchases were made on terms of 2/10, n/30. Three-fourths of the items purchased were paid for within 10 days of purchase. All of the goods available had been sold at year end.
-Which of the following recording procedures would result in the highest cost of goods sold for 2014?1. Recording purchases at gross amounts2. Recording purchases at net amounts, with the amount of discounts not taken shown under "other expenses" in the income statement
A) 1
B) 2
C) Either 1 or 2 will result in the same cost of goods sold.
D) Cannot be determined from the information provided.

Question

Quizplus · Accepted Answer

Recording purchases at gross amounts would result in a higher cost of goods sold because discounts taken would not be deducted from purchases. Therefore, the cost of goods sold would be higher than if purchases were recorded at net amounts.

Use the Following Information for Questions 56 and 57