Assume the Perpetual Inventory Method Is Used

question 10

Multiple Choice

Assume the perpetual inventory method is used.
1) Marathon Company purchased merchandise inventory that cost $8,000 under terms of 2/10, n/30 and FOB shipping point.
2) Marathon paid freight cost of $500 on the merchandise.
3) Marathon made payment to the supplier within the discount period.
4) All of the goods were sold to customers on account for $12,000.
As a result of Marathon's four transactions above, the net amount of the company's cash flow from operating activities is

• A) $8,340 outflow.
• B) $12,000 inflow.
• C) $8,500 outflow.
• D) $3,660 inflow.

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Definitions:

Deferred Income Taxes

The accounting concept that recognizes the tax effect of transactions in different periods than when the transactions actually occur.

Effective Tax Rate

The average rate at which an individual or corporation is taxed, calculated by dividing the total tax paid by the taxable income.

Bond Premium

The amount by which the market price of a bond exceeds its face value.

Goodwill Impairment

A decrease in the value of goodwill, which occurs when the carrying amount of a company's goodwill exceeds its fair value.