A Farm Supply Store Starting with a $40,000 Inventory at Cost

question 8

Multiple Choice

A farm supply store starting with a $40,000 inventory at cost expects to sell $400,000 (cost of sales) of merchandise in the coming year. It plans to turn over its stock 10 times during the year. How much merchandise must the shop purchase during the year?

• A) $200,000
• B) $400,000
• C) $420,000
• D) $440,000
• E) None of the above.

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Definitions:

Prepaid Expenses

Costs paid in advance of their use, such as insurance or rent, which are recorded as assets on a balance sheet until they are actually incurred.

Recorded

The process of documenting financial transactions in the accounting records of a business.

Adjusted Trial Balance

A trial balance taken after adjustments have been made, used for preparing financial statements.

Accounts Payable

Money owed by a company to its suppliers or creditors for goods and services received.