When Purchasing Inventory on Account in a Perpetual Inventory System

question 53

Multiple Choice

When purchasing inventory on account in a perpetual inventory system, which of the following is TRUE?

• A)The journal entry would be exactly the same for all inventory costing methods.
• B)LIFO and FIFO inventory valuation methods require a debit to inventory while all others require a debit to purchases.
• C)GAAP does not allow inventory to be purchased on account.
• D)The average costing method requires a credit to inventory.

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Definitions:

Marginal External Cost

The additional cost incurred by society as a whole due to one more unit of a good being produced, not accounted for by the producer.

Competitive Price

The price at which a product or service is sold that is reasonably close to the prices of competing products or services in the same market.

Socially Optimal Levels

Situations or outcomes in an economy that are considered the best from the standpoint of society as a whole, often involving efficient allocation of resources.

Effluent Dumping

The discharge of pollutants or waste materials into the environment, particularly into water bodies, without adequate treatment.