Desired Ending Inventory Is 20% of Next Month's Sales

question 22

Multiple Choice

Desired ending inventory is 20% of next month's sales. If cost of goods sold is $300,000 and next month's sales are $900,000, which of the following statements is true regarding purchases?

• A)Purchases will be more than cost of goods sold.
• B)Purchases cannot be predicted from the information given.
• C)Purchases will be less than cost of goods sold.
• D)Purchases will equal cost of goods sold.

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Definitions:

Adjustments Column

A column in accounting ledgers or tables used to record changes or corrections to initial entries prior to preparing financial statements.

Trial Balance

A bookkeeping worksheet in which the balances of all ledgers are compiled into debit and credit account columns to ensure a company's bookkeeping system is mathematically correct.

Accounting Cycle

The comprehensive process of recording and processing all financial transactions of a company, from when the transaction occurs, to its representation on the financial statements.

Adjusted Trial Balance

A version of the trial balance that reflects account balances after adjustments are made for accruals, deferrals, and errors.