Azure Company Uses the Perpetual Inventory System

question 38

Multiple Choice

Azure Company uses the perpetual inventory system. On May 3, it sold merchandise on account to Sigma Enterprises, invoice no. 672, $4,500. Cost of inventory sold is $3,850. Which of the following journal entries records the effect on merchandise inventory?

• A) A debit to Accounts Receivable of $4,500, a credit to Merchandise Inventory of $4,500
• B) A debit to Cost of Goods Sold of $4,500, a credit to Merchandise Inventory of $4,500
• C) A debit to Cost of Goods Sold of $3,850, a credit to Merchandise Inventory of $3,850
• D) A debit to Accounts Receivable of $3,850, a credit to Merchandise Inventory of $3,850

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Definitions:

Payback Period

The amount of time it takes to recover the cost of an investment through its cash inflows.

Payback

The method of calculating the duration required to recover the cost of an investment, emphasizing the time it takes to reach a breakeven point.

Annual Cash Flows

The total amount of money being transferred into and out of a business, affecting its liquidity, over a year.

Required Rate

The minimum return that investors expect to earn from an investment, influencing many financial decisions.