A Company That Uses the Perpetual Inventory System Purchased 500

question 73

Multiple Choice

A company that uses the perpetual inventory system purchased 500 pallets of industrial soap for $7,000 and paid $800 for the freight-in.The company sold the whole lot to a supermarket chain for $15,000 on account.Which of the following entries correctly records the sale?

• A) \[\begin{array} { | c | r | r | }
• \hline \text { Accounts Receivable } & 15,000 & \\
• \hline \text { Sales Revenue } & & 15,000 \\
• \hline \text { Cost of Goods Sold } & 7,800 & \\
• \hline \text { Merchandise Inventory } & & 7,800 \\
• \hline
• \end{array}\]
• B) \[\begin{array} { | c | r | l | }
• \hline \text { Merchandise Inventory } & 15,000 & \\
• \hline \text { Cost of Goods Sold } & & 15,000 \\
• \hline
• \end{array}\]
• C) \[\begin{array} { | c | r | l | }
• \hline \text { Cost of Goods Sold } & 15,000 & \\
• \hline \text { Sales Revenue } & & 15,000 \\
• \hline
• \end{array}\]
• D) \[\begin{array} { | c | r | r | }
• \hline \text { Accounts Receivable } & 15,000 & \\
• \hline \text { Sales Revenue } & & 15,000 \\
• \hline \text { Cost of Goods Sold } & 7,000 & \\
• \hline \text { Merchandise Inventory } & & 7,000 \\
• \hline
• \end{array}\]

---

Definitions:

Interest Expense

The cost incurred by an entity for borrowed funds, recognized as a finance expense or interest cost.

Discount Rate

The discount rate applied in the evaluation of discounted cash flow (DCF) to calculate the current worth of future cash flows.

Proportionate Consolidation Method

The proportionate consolidation method is an accounting technique where a parent company combines a portion of its subsidiary's assets, liabilities, income, and expenses in proportion to its ownership interest in the subsidiary.

Fair Value

Fair value is the price that would be received for selling an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.