A Company Using the Perpetual Inventory System Purchased Inventory Worth

question 119

Multiple Choice

A company using the perpetual inventory system purchased inventory worth $500,000 on account with terms of credit being 3/15, n/45. Defective inventory of $50,000 was returned 2 days later and the accounts were appropriately adjusted. If the company paid the invoice 25 days later, the journal entry to record the payment would be:

• A)$500,000 debit to Accounts Payable and $500,000 credit to Cash.
• B)$450,000 debit to Accounts Payable, $450,000 credit to Cash.
• C)$500,000 debit to Accounts Payable ,$486,500 credit to Cash and $13,500 credit to Inventory.
• D)$486,500 debit to Accounts Payable, $13,500 credit to Inventory and $450,000 credit to Cash.

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Definitions:

Capital Employed

The total amount of capital used for the acquisition of profits by a firm or project, including the value of all assets employed in a business.

Production Function

A formula that specifies the output generated by a firm from varying combinations of factor inputs.

Marginal Cost

The supplementary expense incurred by fabricating one more unit of a product or service.

Diminishing Returns

An economic principle stating that as investment in a particular area increases, the rate of profit from that investment, after a certain point, cannot continue to increase if other variables remain constant.