) Periodic and Perpetual inventory systems. Determine whether the following situations would suggest that a Periodic inventory system is being used or if a Perpetual system is being used. Answer each question using the following: Periodic = (1) Perpetual = (2).

SITUATIONS

Merchandise is stored at only one location and the owner handles

all operating and accounting functions. ____

The product sold (for example, beer) is very inexpensive and it is

difficult and not practical to calculate the cost as it is sold. ____

Upper management likes to look at reports, such as how many of

each item was sold, how many of each item remains in inventory,

and the general trend of costs over a period of time. ____

The business is large and has several locations. ____

There is a lack of education and money in the company. ____

2) Multiple choice. For each question below, circle the best answer from the choices given.

Assume that I.M. Shore buys inventory (stereos) and resells them at a profit to its customers. The

company uses a perpetual inventory system. For each question, assume youre the companys CFO.

_____ 1 : When inventory is purchased by I.M. Shore, the following entry will be made a. A Debit to Cash b. A Credit to Inventory c. A Credit to Accounts Payable

d. A Debit to Accounts Receivable

e. None of the above

_____ 2 : When inventory is sold by I.M. Shore, the following entry will be made a. A Debit to Cost of Goods Sold and a Credit to Inventory b. A Debit to Inventory and a Debit to Cost of Goods Sold c. A Debit to Accounts Payable and a Debit to Cost of Goods Sold

d. A Debit to Accounts Receivable and a Debit to Revenue

e. None of the above

_____ 3 : When the customer pays the invoice sent by I.M. Shore, the following entry will be made a. A Credit to Cash b. A Debit to Inventory c. A Debit to Accounts Payable

d. A Credit to Accounts Receivable

e. None of the above

_____ 4 : When the bill for inventory is paid by I.M. Shore, the following entry will be made a. A Debit to Cash b. A Debit to Accounts Payable c. A Credit to Accounts Payable

d. A Debit to Accounts Receivable

e. None of the above

_____ 5 : If there is a shortage of inventory at the end of the period when a physical inventory is taken, the

following entry will be made a. A Debit to an expense account b. A Debit to Inventory c. A Debit to Accounts Payable

d. A Debit to Accounts Receivable

e. None of the above