A Company Uses the Perpetual Inventory System and Recorded the Following

question 4

Multiple Choice

A company uses the perpetual inventory system and recorded the following entry: $\begin{array}{|c|c|c|}\hline \text { Merchandise Inventory } & 2,500 & \\\hline \text { Accounts Payable } & & 2,500 \\\hline\end{array}$ This entry reflects a:

• A)Purchase of merchandise on credit.
• B)Return of merchandise.
• C)Sale of merchandise on credit.
• D)Payment of the account payable less a 2% cash discount taken.
• E)Payment of the account payable less a 1% cash discount taken.

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Definitions:

Leverage

In finance, leverage refers to the use of borrowed funds or debt to amplify potential returns on investment.

Optimal Structure

The most efficiently arranged composition of an entity or process to maximize performance or outcomes, often used in the context of financial capital structure or organizational design.

Operating Leverage

A measure of how revenue growth translates into an increase in operating income, indicating the extent to which a company can increase profitability by increasing sales.

Financial Leverage

The use of borrowed funds in an attempt to increase the returns to equity.