2/9/25, 9:24 AM LO 4-1: Record & report on inventory transactions using the perpetual system (Pre-req. LO3-1): SP2025 MBA 601-QL/QX Accountin…
Question 1 11..11 pts
Paying cash to purchase inventory is
an asset source transaction.
an asset use transaction.
orrect! an asset exchange transaction.
a claims exchange transaction.
When a merchandising company pays cash to purchase inventory one
asset account (cash) decreases and another asset account (inventory)
increases. The amount of total assets is not affected. The purchase is an
asset exchange transaction.
Question 2 11..11 pts
Product costs are expensed when they are incurred. This statement is
True
orrect! False
At the time they are incurred, product costs are accumulated in an asset
account (inventory). They are expensed later when the inventory is sold
to customers.
,2/9/25, 9:24 AM LO 4-1: Record & report on inventory transactions using the perpetual system (Pre-req. LO3-1): SP2025 MBA 601-QL/QX Accountin…
Question 3 11..11 pts
When a merchandising company pays cash to purchase inventory
the amount of total assets increases.
the amount of expenses increases.
the amount of total assets decreases.
orrect! None of the answers is correct.
When a merchandising company pays cash to purchase inventory one
asset account (cash) decreases and another asset account (inventory)
increases. The purchase is an asset exchange transaction. The amount
of total assets is not affected. Expenses are recognized when the
inventory is sold, not when it is purchased.
Question 4 11..11 pts
Which of the following shows the effects of purchasing inventory on account?
Balance Sheet Income Statement Statement of
Assets = Liab. + Equity Rev. - Exp. = Net Inc. Cash Flows
A. + = + + NA NA - + = - NA
B. + = NA + + NA - NA = NA + OA
C. + = + + NA NA - NA = NA NA
D. + = + + NA NA - NA = NA + OA
Option A
Option B
orrect! Option C
Option D
,2/9/25, 9:24 AM LO 4-1: Record & report on inventory transactions using the perpetual system (Pre-req. LO3-1): SP2025 MBA 601-QL/QX Accountin…
Purchasing inventory on account is an asset source transaction. It
causes assets (inventory) and liabilities (accounts payable) to increase.
Buying inventory does not affect revenue. Revenue is affected when the
inventory is sold. As a result, there is no effect on the income statement.
Since the inventory was purchased on account, the company did not
spend cash; therefore there is no effect on the statement of cash flows.
Question 5 11..11 pts
When a merchandising company sells inventory it will
recognize only an expense.
recognize only revenue.
orrect! recognize revenue and expense.
not recognize revenue or expense.
When a merchandising company sells inventory, it will recognize sales
revenue for the amount of the sales price. The company will also
recognize a cost of goods sold expense for the amount of the cost of
the goods that were sold.
Question 6 11..11 pts
Edwards Shoe Store sold shoes that cost the company $5,700 for $8,200.
Which of the following shows how the recognition of the cost of goods sold will
affect the Company's financial statement? (Ignore the effects of the associated
revenue recognition.)
Balance Sheet Income Statement Statement of
Assets = Liab. + Equity Rev. - Exp. = Net Inc. Cash Flows
A. – = NA + – NA - + = – – OA
, 2/9/25, 9:24 AM LO 4-1: Record & report on inventory transactions using the perpetual system (Pre-req. LO3-1): SP2025 MBA 601-QL/QX Accountin…
B. – = NA + – NA - NA = NA NA
C. + = NA + + + - NA = + + OA
D. – = NA + – NA - + = – NA
Option A
Option B
Option C
orrect! Option D
When inventory is sold, the cost of the inventory must be removed from
the inventory account thereby reducing assets. The cost of goods sold is
recognized as an expense on the income statement thereby reducing
net income and ultimately stockholders' equity (retained earnings). The
statement of cash flows is not affected because cash flow is recognized
when the company pays for the inventory, not when the inventory is sold.
Question 7 11..11 pts
The gross margin appears on a
single-step income statement.
orrect! multistep income statement.
single-step statement of cash flows.
multistep statement of cash flows.
Question 1 11..11 pts
Paying cash to purchase inventory is
an asset source transaction.
an asset use transaction.
orrect! an asset exchange transaction.
a claims exchange transaction.
When a merchandising company pays cash to purchase inventory one
asset account (cash) decreases and another asset account (inventory)
increases. The amount of total assets is not affected. The purchase is an
asset exchange transaction.
Question 2 11..11 pts
Product costs are expensed when they are incurred. This statement is
True
orrect! False
At the time they are incurred, product costs are accumulated in an asset
account (inventory). They are expensed later when the inventory is sold
to customers.
,2/9/25, 9:24 AM LO 4-1: Record & report on inventory transactions using the perpetual system (Pre-req. LO3-1): SP2025 MBA 601-QL/QX Accountin…
Question 3 11..11 pts
When a merchandising company pays cash to purchase inventory
the amount of total assets increases.
the amount of expenses increases.
the amount of total assets decreases.
orrect! None of the answers is correct.
When a merchandising company pays cash to purchase inventory one
asset account (cash) decreases and another asset account (inventory)
increases. The purchase is an asset exchange transaction. The amount
of total assets is not affected. Expenses are recognized when the
inventory is sold, not when it is purchased.
Question 4 11..11 pts
Which of the following shows the effects of purchasing inventory on account?
Balance Sheet Income Statement Statement of
Assets = Liab. + Equity Rev. - Exp. = Net Inc. Cash Flows
A. + = + + NA NA - + = - NA
B. + = NA + + NA - NA = NA + OA
C. + = + + NA NA - NA = NA NA
D. + = + + NA NA - NA = NA + OA
Option A
Option B
orrect! Option C
Option D
,2/9/25, 9:24 AM LO 4-1: Record & report on inventory transactions using the perpetual system (Pre-req. LO3-1): SP2025 MBA 601-QL/QX Accountin…
Purchasing inventory on account is an asset source transaction. It
causes assets (inventory) and liabilities (accounts payable) to increase.
Buying inventory does not affect revenue. Revenue is affected when the
inventory is sold. As a result, there is no effect on the income statement.
Since the inventory was purchased on account, the company did not
spend cash; therefore there is no effect on the statement of cash flows.
Question 5 11..11 pts
When a merchandising company sells inventory it will
recognize only an expense.
recognize only revenue.
orrect! recognize revenue and expense.
not recognize revenue or expense.
When a merchandising company sells inventory, it will recognize sales
revenue for the amount of the sales price. The company will also
recognize a cost of goods sold expense for the amount of the cost of
the goods that were sold.
Question 6 11..11 pts
Edwards Shoe Store sold shoes that cost the company $5,700 for $8,200.
Which of the following shows how the recognition of the cost of goods sold will
affect the Company's financial statement? (Ignore the effects of the associated
revenue recognition.)
Balance Sheet Income Statement Statement of
Assets = Liab. + Equity Rev. - Exp. = Net Inc. Cash Flows
A. – = NA + – NA - + = – – OA
, 2/9/25, 9:24 AM LO 4-1: Record & report on inventory transactions using the perpetual system (Pre-req. LO3-1): SP2025 MBA 601-QL/QX Accountin…
B. – = NA + – NA - NA = NA NA
C. + = NA + + + - NA = + + OA
D. – = NA + – NA - + = – NA
Option A
Option B
Option C
orrect! Option D
When inventory is sold, the cost of the inventory must be removed from
the inventory account thereby reducing assets. The cost of goods sold is
recognized as an expense on the income statement thereby reducing
net income and ultimately stockholders' equity (retained earnings). The
statement of cash flows is not affected because cash flow is recognized
when the company pays for the inventory, not when the inventory is sold.
Question 7 11..11 pts
The gross margin appears on a
single-step income statement.
orrect! multistep income statement.
single-step statement of cash flows.
multistep statement of cash flows.
