On April 1, a Hardware Manufacturing Firm Purchases Inventory on Account

question 59

Multiple Choice

On April 1, a hardware manufacturing firm purchases inventory on account for $700. Which of the following correctly describes the effect of this transaction? Assume a perpetual inventory system is used.

• A)Merchandise Inventory decreases by $700 and Accounts Receivable decreases by $700.
• B)Merchandise Inventory decreases by $700 and Accounts Receivable increases by $700.
• C)Merchandise Inventory increases by $700 and Accounts Payable decreases by $700.
• D)Merchandise Inventory increases by $700 and Accounts Payable increases by $700.

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Definitions:

Debt Financing

A method of raising capital through the borrowing of money, which needs to be repaid at a later date, often with interest.

Lessee

An individual or entity that leases or rents property from a lessor.

Leasing Cash Flows

The cash inflows and outflows associated with leasing operations, including initial receipts, ongoing lease payments, and final residuals.

Operating Leases

Lease agreements for the use of equipment or property for a shorter period compared to the asset's useful life, where lessor retains ownership.