FINANCIAL ACCOUNTING
FINANCIAL ACCOUNTING
10th Edition
ISBN: 9781259964947
Author: Libby
Publisher: MCG
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### Inventory Transactions and Perpetual Inventory System When a company purchases merchandise, the transactions should be recorded accurately to maintain proper accounting records. In this example, The Wilson Company purchased $33,000 worth of merchandise from Poole Wholesale Company and also incurred transportation-in costs of $2,600. The company employs a perpetual inventory system. The following options consider different methods of recording these transactions: 1. **Total debits to the inventory account would be $35,600** - This option assumes that both the purchase amount and the transportation-in cost are added to the inventory account. - Calculation: - Merchandise: $33,000 - Transportation-in: $2,600 - Total: $33,000 + $2,600 = $35,600 2. **Total debits to the inventory account would be $33,000** - This option considers only the purchase amount without including the transportation-in cost. 3. **Transportation-in would be debited for $2,600** - This option suggests recording only the transportation-in cost separately without combining it with the purchase amount in the inventory account. 4. **Total debits to the inventory account would be $2,600** - This option seems incorrect as it only considers the transportation-in cost, ignoring the actual purchase amount. #### Explanation of the Perpetual Inventory System In a perpetual inventory system, all purchases, sales, returns, and other changes to inventory are recorded in real-time as they occur. This system provides up-to-date inventory levels and helps in better inventory management. For example, in the given scenario, the correct recording would generally involve adding both the purchase cost and the transportation-in cost to the inventory account: **Journal Entry:** - Debit Inventory $35,600 - Credit Accounts Payable $33,000 - Credit Cash (or Accounts Payable) for transportation-in $2,600 This integrated approach helps in reflecting the true cost of inventory on hand. Therefore, the correct answer among the provided options is the first one: *Total debits to the inventory account would be $35,600*. ### Navigation Controls At the bottom of the displayed image, there are navigation controls indicating the current page out of the total, with options to move to the previous or the next page (i.e., "Prev" and "Next"). This ensures easy maneuvering through the educational content. - **
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Transcribed Image Text:### Inventory Transactions and Perpetual Inventory System When a company purchases merchandise, the transactions should be recorded accurately to maintain proper accounting records. In this example, The Wilson Company purchased $33,000 worth of merchandise from Poole Wholesale Company and also incurred transportation-in costs of $2,600. The company employs a perpetual inventory system. The following options consider different methods of recording these transactions: 1. **Total debits to the inventory account would be $35,600** - This option assumes that both the purchase amount and the transportation-in cost are added to the inventory account. - Calculation: - Merchandise: $33,000 - Transportation-in: $2,600 - Total: $33,000 + $2,600 = $35,600 2. **Total debits to the inventory account would be $33,000** - This option considers only the purchase amount without including the transportation-in cost. 3. **Transportation-in would be debited for $2,600** - This option suggests recording only the transportation-in cost separately without combining it with the purchase amount in the inventory account. 4. **Total debits to the inventory account would be $2,600** - This option seems incorrect as it only considers the transportation-in cost, ignoring the actual purchase amount. #### Explanation of the Perpetual Inventory System In a perpetual inventory system, all purchases, sales, returns, and other changes to inventory are recorded in real-time as they occur. This system provides up-to-date inventory levels and helps in better inventory management. For example, in the given scenario, the correct recording would generally involve adding both the purchase cost and the transportation-in cost to the inventory account: **Journal Entry:** - Debit Inventory $35,600 - Credit Accounts Payable $33,000 - Credit Cash (or Accounts Payable) for transportation-in $2,600 This integrated approach helps in reflecting the true cost of inventory on hand. Therefore, the correct answer among the provided options is the first one: *Total debits to the inventory account would be $35,600*. ### Navigation Controls At the bottom of the displayed image, there are navigation controls indicating the current page out of the total, with options to move to the previous or the next page (i.e., "Prev" and "Next"). This ensures easy maneuvering through the educational content. - **
### Understanding Perpetual Inventory System Adjustments #### Problem Statement **Scenario:** The Wilson Company purchased $33,000 of merchandise from the Poole Wholesale Company. Wilson also paid $2,600 for freight costs to have the goods shipped to its location. The company uses the perpetual inventory system. **Question:** Which of the following summarizes the effects of the journal entries required to record these transactions for The Wilson Company? *(Consider the effects of both business events)* #### Multiple Choice Options: A) Total debits to the inventory account would be $35,600. B) Total debits to the inventory account would be $33,000. #### Explanation: When using the perpetual inventory system, inventory purchases and any additional costs associated with purchasing inventory, such as freight costs, add to the recorded cost of inventory. - **Inventory Purchase:** - Debit Inventory $33,000 - Credit Accounts Payable (or Cash) $33,000 - **Freight Costs:** - Debit Inventory $2,600 - Credit Cash (or Accounts Payable) $2,600 Combining both events, the total debit to the inventory account would be $33,000 + $2,600 = $35,600. **Answer:** A) Total debits to the inventory account would be $35,600.
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Transcribed Image Text:### Understanding Perpetual Inventory System Adjustments #### Problem Statement **Scenario:** The Wilson Company purchased $33,000 of merchandise from the Poole Wholesale Company. Wilson also paid $2,600 for freight costs to have the goods shipped to its location. The company uses the perpetual inventory system. **Question:** Which of the following summarizes the effects of the journal entries required to record these transactions for The Wilson Company? *(Consider the effects of both business events)* #### Multiple Choice Options: A) Total debits to the inventory account would be $35,600. B) Total debits to the inventory account would be $33,000. #### Explanation: When using the perpetual inventory system, inventory purchases and any additional costs associated with purchasing inventory, such as freight costs, add to the recorded cost of inventory. - **Inventory Purchase:** - Debit Inventory $33,000 - Credit Accounts Payable (or Cash) $33,000 - **Freight Costs:** - Debit Inventory $2,600 - Credit Cash (or Accounts Payable) $2,600 Combining both events, the total debit to the inventory account would be $33,000 + $2,600 = $35,600. **Answer:** A) Total debits to the inventory account would be $35,600.
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