1. Your company, which uses the perpetual method, purchases inventory for $7,000
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Question
1. Your company, which uses the perpetual method, purchases inventory for $7,000 on account, but before paying the invoice returns damaged goods for a $650 credit. What is the journal entry to record this return? a. Purchase Returns and Allowances 650 Accounts Payable 650 b. Accounts Payable 650 Inventory 650 c. Accounts Payable 650 Purchase Returns and Allowances 650 d. Accounts Payable 650 Cost of Goods Sold 650
2. On March 15, EtCo, which uses the perpetual method, sells on account $50,000 of computers for which it had paid $25,000. That same month, 20% of the computers are returned before the buyer pay the invoices. What is the journal entry to record these returns? a. Sales Returns 10,000 Accounts Receivable 10,000 Inventory 5,000 Purchase Returns 5,000 b. Sales Returns 10,000 Accounts Receivable 10,000 c. Sales Returns 10,000 Inventory 5,000 Accounts Receivable 10,000 Cost of Goods Sold 5,000 d. Sales Returns 10,000 Gross Profit 5,000 Accounts Receivable 5,000
3. Recorded purchases of inventory affect: a. only the income statement. b. only the balance sheet. c. both the balance sheet and the income statement. d. none of the above.
4. In its first year of operation, Flip Co, which uses the perpetual method and records purchases at net, buys two lots of sweaters, 1/10, n/30: the first lot on March 10 for $4,000, paying the invoice on March 16; the second lot on June 25 for $2,000, paying the invoice on July 9. If no sweaters are sold from March through July, how will these purchases appear Flip Co’s income statement for the year ended July 31? a. No effect, because there were no sales. b. As a loss of $20 c. As a loss of $40 d. As a loss of $60
5. Your company, which uses the perpetual method, does a year-end physical count of inventory. If there has been shrinkage, the adjustment will include: a. a debit to an asset account. b. a credit to an income statement account. c. a credit to an asset account. d. a debit to a liability account.
Explanation / Answer
1. Answer is Option B that is Account Payable Debit $650 , Inventory Credit $ 650
( Under perpetual method, inventory is updated for each and every purchase / sale / Returns transaction)
2. Answer is Option C that is Sales Return Debit $10000 Inventory Debit $5000, Account Receivables Credit $10000 Cost of Goods Sold $5000
3. Answer is Option B that is Recorded purchases of inventory affect only the balance sheet.
4. Answer is Option A that is No effect because there were no sales.
5. Answer is Option C that is a credit to an asset account (Inventory over & shortage Debit, Inventory credit therefore inventory being asset credited)
3.
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