Use the Following for Questions

question 12

Multiple Choice

Use the following for questions
Assume the perpetual inventory method is used.
1) The company purchased $12,500 of merchandise on account under terms 2/10,n/30.
2) The company returned $1,200 of merchandise to the supplier before payment was made.
3) The liability was paid within the discount period.
4) All of the merchandise purchased was sold for $18,800 cash.
-The net cash flow from operating activities as a result of the four transactions is:

• A)$5,100.
• B)$7,726.
• C)$6,550.
• D)$11,074.

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Definitions:

Price Remains The Same

A condition where the cost of a good or service does not change over a period of time.

Substitution Bias

Substitution bias occurs in inflation measurement and refers to the tendency of consumers to change their purchasing habits away from goods that have increased in price to cheaper alternatives, which is not always fully captured by price indexes.

CPI

The Consumer Price Index, which measures the average change over time in the prices paid by urban consumers for a market basket of consumer goods and services.

Consumer Substitution

The tendency of consumers to switch from one good to another in response to changes in relative prices, keeping their level of satisfaction or utility constant.