Question

Question 48 (2 points) Pumpkin Head purchased $3,000 of merchandise from Jones Corp. on account. Pumpkin Head paid within ten days when the terms were 1/15 n/30. Record the journal entry for the payment by Pumpkin Head which uses the perpetual inventory system (note this is paid within the discount period -- unlike the horrible question on your review). 3,000 3,000 Accounts Payable Cash Accounts Receivable Merchandise inventory Cash 3,000 30 2,970 Cash 3,000 3,000 Accounts Payable Accounts Payable Merchandise inventory Cash 3,000 30 2,970 Question 49 (2 points) Mike's Overstock Retail Emporium, Inc. (MORE, Inc.) had the following merchandise transactions in October: Purchases Purchase returns Purchase discounts Transportation in $50,000 $ 3,000 $ 1,000 $ 2,000 What is the total cost of merchandise purchased for MORE, Inc.? $46,000 $52,000 $48,000 $50,000 Question 50 (2 points) Why is it important to manage inventory levels? Pick the answer that is most true. You don't ever want to run out and lose a sale, so it is important to carry lots of inventory. Your bonus might include targets on how much inventory you should carry. Having lots of inventory on hand will improve your current ratio making your balance sheet look healthy to outside investors and creditors. Because it costs money to carry extra inventory, it is best to develop quick! restock processes so only minimum amounts of inventory are stored on hand.

Answer 1

48	The Journal entry will be:
	Accounts Payable	$             3,000
	Cash		$             2,970
	Merchandise Inventory($3000*1%)		$                  30
	So Option D is the answer
49	Purchases	$           50,000
	Less:Purchase Returns	$            -3,000
	Less:Purchase discounts	$            -1,000
	Add:Transportation in	$             2,000
	Total Cost of merchandise	$           48,000
	So Option C is the answer
50	All the options are correct if we consider different scenarios. But for the business the most valid reason for carrying out
	inventory is beacause it carry more costs to store extra inventory so it is best to develop quick restock processes so that
	only minimum amount of inventory are stored in hand.
	Note that carrying of unnecassary inventory shall affect the liquidity of the company as the cash is blocked and that is the reason
	why the Quick ratio also decreases.
	So Option D is the answer