A Company That Uses the Perpetual Inventory Method Purchases Inventory

question 123

Multiple Choice

A company that uses the perpetual inventory method purchases inventory of $1,000 on account with terms of 2/10,n/30.Which of the following entries would be made to record the payment if it is made 20 days later?

• A) $1,000 debit to Accounts payable and a $1,000 credit to Cash
• B) $1,000 debit to Accounts payable, a $20 credit to Inventory and a $980 credit to Cash
• C) $20 debit to Inventory, a $1,000 debit to Accounts payable and a $1,020 credit to Cash
• D) $980 debit to Accounts payable, a $20 debit to Inventory and a $1,000 credit to Cash

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Definitions:

Spending Power

Spending power, or fiscal power, refers to the ability of a governing body to mobilize monetary resources or funds for various expenditures to influence the economy.

Congress

The legislative branch of the United States federal government, consisting of the House of Representatives and the Senate.

Fundamental Right

Basic human rights that are recognized and protected by constitutions or legal systems, considered essential for human dignity and freedom.

Rational-Basis Test

The lowest standard of review; requires that a law be designed to protect a legitimate state interest and be rationally related to that interest.