Question

Question 20 2.5 pts

Merchandise Inventory is what type of account?

Liability

Expense

Asset

Contra-Asset

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Question 21 2.5 pts

Returned merchandise for credit on account. The perpetual inventory system is in use. This will be recorded with:

a debit to an asset and a credit to a liability.

a debit to an asset and a credit to an expense.

a debit to a liability and a credit to an expense.

a debit to a liability and a credit to an asset.

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Question 22 2.5 pts

Returned merchandise paid for within the discount period for cash. The perpetual inventory system is in use. This will be recorded with:

a debit to a liability and a credit to purchases.

a debit to an expense and a credit to a liability.

a debit to an expense and a credit to an asset.

a debit to an asset and a credit to an asset.

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Question 23 2.5 pts

If merchandise was bought for Cash, the same entry would be made on the company's books regardless of the type of inventory method is used.

True

False

Answer 1

Solution :

20 - Merchandise inventory is what type of account ?

Ans : Asset account- The merchandise inventory which is also known as Inventory in general terms is a current asset for the business. It has a debit balance. Which means that a debit in the account increases the balance and credit in the account decreases the balance.

21 - Returned merchandise for credit on account. The perpetual inventory system is in use. This will be recorded with:

Ans : a debit to a liability and a credit to an asset account.

Since the merchandise was purchased on credit , the liability account balance which was increased on the purchase will now be decreased and hence there is debit given to the Payable account. Further inventory which is an asset account will be given a credit under perpetual inventory accounting system since inventory is reduced.

22 - Returned merchandise paid for within the discount period for cash. The perpetual inventory system is in use. This will be recorded with:

Ans : debit to an asset account, credit to an asset account.

Under perpetual inventory system purchase account doesn't come into picture. Hence while inventory which was purchased in cash is now returned under perpetual inventory system , there will be a debit to cash account and a credit to inventory account in which cash is increased with the amount paid which is now returned and inventory is decreased as the merchandise is returned.

23- If merchandise was bought for Cash, the same entry would be made on the company's books regardless of the type of inventory method is used.

Ans : False.

Reason is in normal case of transaction purchase account is involved in case of inventory purchase transactions but if perpetual inventory system is used purchase account doesn't come into picture and hence on asset and liability accounts are reflected.