Question

When calculating ending inventory under a periodic inventory, you are provided this information: Purchases $88,000; Beginning Inventory $4,000; Sales Revenue $125,000; physical count of Ending Inventory $7,500. Which of the following is true?

Question 23 options:

	The journal entry to record the ending inventory is Debit Inventory $3,500, Credit Cost of Goods Sold $3,500
	Debit Cost of Goods Sold $92,000, Credit Inventory $4,000 and Credit Purchases $88,000
	Both a. and b.
	Neither a. nor b.

Answer 1

The correct answer is "Neither a. nor b."

Supporting explanations:

Beginning Inventory	$4,000
Add: Purchase of inventory	$88,000
Total inventory available for sale	$92,000
Less: Ending inventory	($7,500)
Cost of Goods Sold	$84,500

Therefore, the cost of goods sold is $84,500 but the same is not given in both of the journal entries - the correct journal entry is shown below -

General Journal	Debit	Credit
Cost of Goods Sold	$84,500
Inventory	$7,500
Purchases		$92,000
(To record the ending inventory and the cost of goods sold)

Therefore, both a & b are incorrect.