Question

Inventory which originally cost 50.0 is sold for 70.0 in cash. Which answer best describes how this transaction would be reflected in the company's balance sheet

Answer 1

Question Completion with Options:

a. Inventory decreases 50.0, cash increases 70.0, retained earnings increases 20.0

b. Cash increases 20.0, sales increases 70.0, inventory decreases 50.0

c. Retained earnings decreases 50.0, inventory decreases 50.0, retained earnings increases 70.0, accounts receivable increases 70.0

d. Inventory decreases 50.0, sales increase 70.0, cash increases 70.0, accounts payable decreases 50.0

Answer:

In the company's balance sheet:

a. Inventory decreases 50.0, cash increases 70.0, retained earnings increases 20.0

Explanation:

a) Data and Analysis:

Cash $70 Sales Revenue $70

Cost of goods sold $50 Inventory $50

b) In the company's balance sheet, the net effect will be an increase in the cash balance by $70 and a decrease of the ending inventory by $50. These two accounts are balanced by an increase in Retained Earnings, which are adjusted from the income statement, in the sum of $20 ($70 - $50).