As Part of an Inventory Purchase, BSP Corporation Paid a Freight

question 18

Multiple Choice

As part of an inventory purchase, BSP Corporation paid a freight bill.The proper treatment of the freight cost in BSP's accounting information system is:

• A)Capitalize to inventory.
• B)Capitalize to cash.
• C)Expense to inventory.
• D)Expense to cash.

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Definitions:

Income Summary

An account in the closing process that summarizes revenues and expenses for a period, transferring the net result to owner's equity.

Retained Earnings

The portion of a company's profits not distributed as dividends but reinvested in the business or kept as reserve.

Current Ratio

A liquidity ratio that measures a company's ability to pay short-term obligations or those due within one year, calculated by dividing current assets by current liabilities.

Permanent Accounts

Balance sheet accounts that carry their ending balances over into the next accounting period, such as assets, liabilities, and equity accounts.