1. Under the perpetual method, the balance in the Inventory account:

a. increases when customers return merchandise and the company returns merchandise to vendors.

b. decreases when customers return merchandise and the company receives vendor purchase allowances.

c. decreases when merchandise is sold and merchandise is purchased.

d. increases when customers return merchandise and decreases when the company returns merchandise to vendors.

2. In its first year, FiCo, which uses the perpetual method and records purchases at net, buys two lots of sweaters, 1/10, n/30: one lot on March 10 for $4,000, paying the invoice on March 16; a second lot on June 25 for $2,000, paying the invoice on July 9. If no sweaters are sold from March through July, what is the balance in FiCos Inventory account on July 31?

a. $6,000

b. $5,980

c. $5,960

d. $5,940

3. If your company records inventory using the perpetual net method, then:

a. when a discount is not taken, the Inventory account is not affected.

b. when a discount is taken, the Inventory account is affected.

c. it is assumed the buyer will not take the discount.

d. none of the above.

4. Your firm, which uses the perpetual method, purchases $10,000 of inventory, 2/10, n/30 You debit Inventory for $9,800 and credit Accounts Payable for $9,800. If the merchandise is paid for within the discount period, you will:

a. debit to Accounts Payable for $9,800.

b. debit to Purchase Discounts Lost for $200.

c. credit to Purchase Discounts Lost for $200.

d. credit to Inventory for $200.

5. Your company, which uses the perpetual method, sells inventory on account for $15,000. If the cost of the inventory is $9,000, you will:

a. credit Inventory for $9,000.

b. debit COGS for $9,000.

c. credit Sales Revenue for $15,000.

d. all of the above.

6. On August 6, your firm, which uses the perpetual method, orders $450 of inventory FOB shipping point. Freight is $50. On August 24, the merchandise arrives and you remit $500. For this transaction, you will:

a. debit Inventory for $500 on August 24.

b. debit Inventory for $450 on August 24.

c. debit Purchases for $450 on August 6.

d. debit Purchases for $500 on August 6.

7. Your company, which uses the perpetual method, purchases inventory for $7,000 on account, but before paying the invoice returns damaged goods for a $650 credit. What is the journal entry to record this return?

a. Purchase Returns and Allowances 650

Accounts Payable 650

b. Accounts Payable 650

Inventory 650

c. Accounts Payable 650

Purchase Returns and Allowances 650

d. Accounts Payable 650

Cost of Goods Sold 650

8. On March 15, EtCo, which uses the perpetual method, sells on account $50,000 of computers for which it had paid $25,000. That same month, 20% of the computers are returned before the buyer pay the invoices. What is the journal entry to record these returns?

a. Sales Returns 10,000

Accounts Receivable 10,000

Inventory 5,000

Purchase Returns 5,000

b. Sales Returns 10,000

Accounts Receivable 10,000

c. Sales Returns 10,000

Inventory 5,000

Accounts Receivable 10,000

Cost of Goods Sold 5,000

d. Sales Returns 10,000

Gross Profit 5,000

Accounts Receivable 5,000

9. Recorded purchases of inventory affect:

a. only the income statement.

b. only the balance sheet.

c. both the balance sheet and the income statement.

d. none of the above.

10. In its first year of operation, Flip Co, which uses the perpetual method and records purchases at net, buys two lots of sweaters, 1/10, n/30: the first lot on March 10 for $4,000, paying the invoice on March 16; the second lot on June 25 for $2,000, paying the invoice on July 9. If no sweaters are sold from March through July, how will these purchases appear Flip Cos income statement for the year ended July 31?

a. No effect, because there were no sales.

b. As a loss of $20

c. As a loss of $40

d. As a loss of $60

11. Your company, which uses the perpetual method, does a year-end physical count of inventory. If there has been shrinkage, the adjustment will include:

a. a debit to an asset account.

b. a credit to an income statement account.

c. a credit to an asset account.

d. a debit to a liability account.