A Firm That Uses the Perpetual Inventory Method Purchases Inventory

question 124

Multiple Choice

A firm that uses the perpetual inventory method purchases inventory of $1 000 on credit with terms of 2/10, n/30. Defective inventory of $200 is returned 2 days later and the accounts are appropriately adjusted. If the firm paid the vendor within 10 days, which of the following entries would be made to record the payment? All amounts include GST.

• A)$800 debit to Accounts payable and an $800 credit to Cash
• B)$14.55 debit to Inventory, a $1.45 debit to GST Clearing, an $800 debit to Accounts payable and an $816 credit to Cash
• C)$800 debit to Accounts payable, a $14.55 credit to Inventory, a $1.45 debit to GST Clearing and a $784 credit to Cash
• D)$784 debit to Accounts payable, a $14.55 debit to Inventory, a $1.45 debit to GST Clearing and an $800 credit to Cash

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Definitions:

Variable Costing

A bookkeeping procedure that adds only variable production fees (including direct materials, direct labor, and variable manufacturing overhead) into the costs associated with products.

Unit Product Cost

The total cost to produce a single unit of product, including direct materials, direct labor, and allocated overhead.

Direct Labor Cost

The expense of labor that can be directly attributed to the production of goods or services.

Net Operating Income

A company's revenue minus its operational direct and indirect costs, excluding taxes and interest.