Question

Parker Company uses the perpetual inventory system. It bought merchandise on account from Beige Inc, invoice no. 342, $20,000; terms 1/15, n/30; dated June 25; FOB San Francisco, freight prepaid and added to the invoice, $1,800 (total $21,800). Which of the following journal entries records this purchase transaction?
a. A debit to Merchandise Inventory of $23,600, a credit to Accounts Payable of $23,600
b. A debit to Merchandise Inventory of $21,800, a credit to Accounts Payable of $21,800
c. A debit to Merchandise Inventory of $20,000, a debit to Freight of $1,800, a credit to Accounts Payable of $21,800
d. A debit to Cost of Goods Purchased of $20,000, a debit to Freight Out of $1,800, a credit to Accounts Payable of $21,800

Answer 1

Answer:

b. A debit to Merchandise Inventory of $21,800, a credit to Accounts Payable of $21,800

Explanation:

Parker Company uses the perpetual inventory system. It bought merchandise on account from Beige Inc, invoice no. 342, $20,000; terms 1/15, n/30; dated June 25; FOB San Francisco, freight prepaid and added to the invoice, $1,800 (total $21,800).

The following journal entries records this purchase transaction:  A debit to Merchandise Inventory of $21,800, a credit to Accounts Payable of $21,800

The reason is that with a perpetual inventory system, transportation costs are added directly to the inventory balance