A Company Used a Perpetual Inventory System

question 58

Multiple Choice

A company used a perpetual inventory system. By physical count, ending Merchandise Inventory is $90,200. The balance in the Merchandise Inventory account is $93,700. The adjusting entry is

• A)debit to Income Summary, $3,500; credit Merchandise Inventory, $3,500.
• B)debit to Merchandise Inventory, $3,500; credit Income Summary, $3,500.
• C)debit to Cost of Goods Sold, $3,500; credit Merchandise Inventory, $3,500.
• D)debit to Income Summary, $3,500; credit Cost of Goods Sold, $3,500.
• E)debit to Merchandise Inventory, $3,500; credit Cost of Goods Sold, $3,500.

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Definitions:

Raw Material

The basic material from which a product is made, typically unprocessed or minimally processed before being used in production.

Work in Process

The inventory account that records products in production but not yet completed.

Property, Plant, and Equipment

Long-term tangible assets owned by a business that are used in producing goods or providing services.

Standard Costs

Predetermined costs for materials, labor, and overhead used as a benchmark to measure actual performance against.