A Firm That Uses the Perpetual Inventory Method Purchases Inventory

question 39

Multiple Choice

A firm that uses the perpetual inventory method purchases inventory for $2 000 from a vendor on credit, FOB shipping point, with terms of 2/10, n/30. The firm paid the shipper $100 cash for freight in. Which of the following entries would be made to record payment to the vendor if the payment is made within 10 days? All amounts include GST.

• A)$2 000 debit to Accounts payable, a $100 debit to Inventory and a $1 960 credit to Cash
• B)$2 000 debit to Accounts payable, a $36.36 credit to Inventory, a $3.64 credit to GST Clearing and a $1 960 credit to Cash
• C)$1 960 debit to Accounts payable, a $36.36 debit to Inventory, a $3.64 debit to GST Clearing and a $2 000 credit to Cash
• D)$1 960 debit to Accounts payable and a $1 960 credit to Cash

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Definitions:

Short Run

A period during which at least one input, such as plant size, is fixed and cannot be varied.

Marginal Decision Rule

The principle of making decisions based on the additional cost vs. additional benefit of the next unit.

MC < MR

This indicates a scenario in economic theory where the marginal cost of producing an additional unit is less than the marginal revenue gained from selling that unit.

Monopolistic Competition

A market structure characterized by many firms selling similar but not identical products, allowing for some degree of market power and product differentiation.