Question

19) Which of the following would NOT be reported as inventory? a. Land acquired by a real estate company to build its new office building. b. Stocks and bonds held for resale by a brokerage firm. c. Partially completed goods held by a manufacturing company. d. Equipment manufactured by a factory that specializes in making construction and mining equipment 20) Which of the following is a characteristic of a perpetual inventory system? a. Inventory purchases are debited to a Purchases account. b. The record keeping required to maintain the system is relatively simple. c. Cost of goods sold is recorded with each sale. d. Cost of goods sold is determined as the amount of purchases less the change in inventory 21) Elkins Corporation uses the perpetual inventory and the gross method. On March 1, it purchased $50,000 of inventory, terms 2/10, n/30. On March 3, Elkins returned goods that cost 5,000. On March 9, Elkins paid the supplier. On March 9, Elkins should credit a. purchase discounts for $1,000. b. inventory for $1,000. c. purchase discounts for $900. d. inventory for $900.

Answer 1

Solution 19:

Land acquired by real estate company to build its new office building will not be reported as inventory as same is not held for the purpose of sales.

Hence option a is correct.

Solution 20:

Characteristic of perpetual inventory system is "Cost of goods sold recorded with each sale"

Hence option c is correct.

Solution 21:

On march 9, Elkins should credit inventory for the amount of discount = ($50,000 - $5,000) * 2% = $900

Hence option d is correct.