A company that uses the perpetual inventory system purchased 500 pallets of industrial soap for $7,000 and paid $750 for the freight-in.The company sold the whole lot to a supermarket chain for $13,000 on account.The company uses the specific-identification method of inventory costing.Which of the following entries correctly records the cost of goods sold?

Question

Quizplus · Accepted Answer

The cost of goods sold is calculated by taking the cost of the goods sold from the warehouse and deducting it from the cost of goods available for sale. In this case, the cost of goods available for sale is $7,750 ($7,000 for the 500 pallets of soap plus $750 for freight-in). Since the specific-identification method is used, the cost of goods sold is equal to the cost of the 500 pallets sold on account to the supermarket chain. Therefore, the cost of goods sold is $7,000 for the 500 pallets sold. The entry to record the cost of goods sold is a debit to Cost of Goods Sold for $7,000 and a credit to Inventory for $7,000. Choice A is the only option that reflects this entry.

A Company That Uses the Perpetual Inventory System Purchased 500