Question

Company A sells blankets. The following transactions occurred during March:

Mar 3	Placed an order on credit with the blanket supplier for 100 blankets at a price of $70 each.
Mar 7	Hired a new employee. The employee will earn $80,000 per year plus benefits.
Mar 17	Received the order placed on March 3. No payment is yet made to the supplier.
Mar 25	Sold 60 of the blankets purchased on March 3. The sale was on credit.
Mar 28	Received half of the payment for the March 25 sale.

The journal entries for March 25 include a credit of $4,200 to which account?

Select one:

a. accounts payable

b. cost of goods sold

c. inventory

d. sales revenue

Answer 1

Answer:

Option c i.e. Inventory is Correct.

The goods sold on March 25 are purchases on March 3 at a price of $70 each. On March 25, two journal entry will be recorded i.e. to record Sales and to record Cost of goods sold.

To record Sales:
The Journal entry to record the sales on credit will be:

Accounts Receivable (Unit Sold * Selling Price)          XXX
                    Sales                                                                                                  XXX

To record Cost of goods sold:
The Journal entry to record the cost of goods sold will be:

Cost of Goods Sold (Unit Sold * Purchase Price)          XXX
                   Inventory XXX

In the given question, the journal entry to record cost of goods sold will be made at $4,200 (60 * $70). Therefore, Inventory will be credit with $4,200 in the entry.