On June 1, Kennedy Company Purchased $8,000 of Inventory on Account

question 37

Multiple Choice

On June 1, Kennedy Company purchased $8,000 of inventory on account from Sterner Company. Sterner Company offers a 5% discount if payment is received within 15 days. Kennedy Company records the purchase using the net method and the perpetual inventory system. The journal entry on June 1 by Kennedy Company includes ________.

• A) a debit to Inventory for $8,000
• B) a credit to Accounts Payable for $8,000
• C) a credit to Cash for $7,600
• D) a debit to Inventory for $7,600

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Definitions:

Adverse Selection

A situation in which asymmetric information results in high-risk individuals being more likely than low-risk individuals to acquire insurance or another financial product, leading to market inefficiency.

Defaulting

Failing to meet the legal obligations of a loan, typically by not making the required payments.

Health Insurance Market

The sector of the economy providing plans and services for individuals to cover healthcare expenses.

Adverse Selection

A situation in markets where buyers and sellers have asymmetric information, leading potentially to a selection of undesirable outcomes, such as in insurance markets where those most likely to need coverage are also most likely to purchase it.