Tetra Company purchased 2,000 units of inventory that cost $4.00 each on January 1, Year 1. An additional 3,000 units of inventory were purchased on January 12, Year 1 at a cost of $4.20 each. Tetra Company sold 4,000 units of inventory on January 20, Year 1. Assuming that Tetra Co. uses the perpetual inventory method and a FIFO cost flow method, how would the entry to recognize the cost of goods sold affect the financial statements?
A) Increase inventory and increase cost of goods sold by $16,400
B) Decrease cost of goods sold and increase inventory by $16,600
C) Increase cost of goods sold and decrease inventory by $16,400
D) Increase inventory and increase cost of goods sold by $16,600

Question

Quizplus · Accepted Answer

(2,000 × $4.00) + (2,000 × $4.20) = $16,400
The entry to recognize cost of goods sold increases cost of goods sold (an expense) and decreases inventory (an asset) by $16,400.

Tetra Company Purchased 2,000 Units of Inventory That Cost $4