Question

Multiple Choice

What did we learn about COGS & Merchandise Inventory accounts?

Question 3 options:

	We record COGS in a journal entry when we sell inventory, and that's for moving the cost of inventory from assets to income statement which will result in reducing the net income.
	In perpetual inventory system, COGS & Merchandise Inventory accounts are both income statement accounts, and they both decrease the net income once recorded in journal entries.
	When we sell, we will record COGS in a journal entry to capture the amount of selling price so that it shows in the Income Statement eventually.
	In perpetual inventory system, we always have to record two journal entries when we sell, one journal to capture the amount of revenue which could've been received in cash or on account, and the other journal is to transfer the amount we paid (for purchasing the inventory) from COGS to the Merchandise Inventory account.

Which of the following is FALSE regarding purchase discount, purchase returns, and transportation cost?

Question 4 options:

	The term 2/10, n/30 means that the we get 2% discount if we pay within 10 days, or we have to pay full amount if we pay between day 11 and day 30.
	If we pay the vendor within the discount period, the Cash will be credited by the discounted amount & Accounts Payable will be debited by the discounted amount.
	In the Perpetual Inventory System, we capitalize the cost of transportation. We do that by Debiting the "Merchandise Inventory" account instead of Debiting an expense account.
	As a buyer, when we return inventory back, we Debit Cash to increase it, and Credit Merchandise Inventory to decrease it.

Answer 1

3	Answer is
	We record COGS in a journal entry when we sell inventory, and that's for moving the cost of inventory from assets to income statement which will result in reducing the net income
	Second statement is wrong since merchandise inventory is a balance sheet account and not income statement account
	Third statement is wrong since COGS capture the Purchase cost of inventory and not selling price
	Fourth statement is wrong since other journal is to transfer cost of inventory from Merchandise inventory account to COGS
4	Answer is
	If we pay the vendor within the discount period,the cash will be credited by the discounted amount & accounts payable will be debited by the discounted amount
	This statement is wrong since accounts payable will be debited by the invoice price and not by discounted amount
	Other statements are correct