The Policy At Adler Corporation Is To Expense All Office Supplies At The Time Of Purchase. On The Last Day Of The Accounting Period, There Are $1,100 Of Unused Office Supplies On Hand And The Balance Of Supplies Expense Is $3,500. What Should The Accountant Do? | Which Of The Following Items Does Not Result In An Adjustment In The Merchandise Inventory Account Under A Perpetual System?

The Policy At Adler Corporation Is To Expense All Office Supplies At The Time Of Purchase. On The Last Day Of The Accounting Period, There Are $1,100 Of Unused Office Supplies On Hand And The Balance Of Supplies Expense Is $3,500. What Should The Accountant Do? A) Debit Supplies and credit Supplies Expense for $1,100. B) Nothing, company policy says to expense supplies when purchased. C) Convince management to change its policy to avoid problems in the future. D) Debit Supplies Expense for $2,400 and credit Supplies for $2,400. Which Of The Following Items Does Not Result In An Adjustment In The Merchandise Inventory Account Under A Perpetual System? A) A purchase of merchandise. B) A return of merchandise inventory to the supplier. C) Payment of freight costs for goods shipped to a customer. D) Payment of freight costs for goods received from a supplier.
1. The correct choice of this multiple choice question is (A), as the portion of office supplies account amounting to $1,100 is still unused or unconsumed, which represents office supplies on hand i.e., a current asset, as it is still not charged to expense on the last day of the accounting period, so we transferred the portion of office supplies expense account to office supplies account. So, we debit supplies account and credit supplies expense account with the amount of $1,100.

The other options of this mcq are not correct choices here.

2. The correct option is C, as the payment of freight made after the goods sold to customers i.e., the customers purchased the goods from the company and the company delivered the goods to his place as the company offers free delivery to its customers so the delivery expense / shipping charges is paid by the company. So, freight outward (carriage outward / transportation outward) is treated as a selling & distribution expense under operating expenses in Income Statement for the accounting period. It is not recorded in Trading Account but in Profit & Loss Account.

Freight Outward Journal Entry

                                     Freight Outward a/c  XXX

                                                                       Cash a/c / Bank a/c XXX

                             (Freight Paid For Distribution Goods To Customer After Goods Sold To Him)

The option D represents Freight Inward (Carriage Inward / Transportation Inward) as it is a direct cost which is incurred to bring the bring the goods into business’ warehouse for salesable purpose. It is added to the cost of purchases. It is recorded in Trading Account as it is the part of Cost of Goods Sold. So, this option is incorrect choice here as it is resulted in an adjustment in merchandise inventory under a perpetual system.

Freight Inward Journal Entry

                                      Purchases a/ XXX

                                      Freight Inward a/c  XXX

                                                                    Cash a/c / Bank a/c XXX

                           (Freight Inward Paid For Goods Purchased From Supplier / Vendor)

The option A is incorrect choice here as purchase of merchandise increases inventory i.e., cost of goods sold increases under perpetual inventory system.

The option B is also incorrect choice here as it represents Purchases Returns which decreases the merchandise inventory and as a result cost of sales decreases under perpetual inventory system.

Comments

Post a Comment