Question

Ace Bonding Company purchased merchandise inventory on account. The inventory costs $3,800 and is expected to sell for $6,600. How should Ace record the purchase?

Multiple Choice

• Inventory	3,800
  Accounts payable		3,800

• Cost of goods sold	3,800
  Deferred revenue	2,800
  Sales in advance		6,600

• Cost of goods sold	3,800
  Profit	2,800
  Sales payable		6,600

Answer 1

Ace bonding company purchased merchandise inventory on account. The cost of inventory purchased was $3,800. At the time of recording of purchase transaction, purchase price is considered and not the sale price of inventory.

Since, the inventory was purchased on account, hence a liability has increased in the form of accounts payable. Thus, to record purchase, inventory will be debited by $3,800 since inventory has increased and account payable will be credited by $3,800. Since accounts payable's have also increased.

First option is the correct option.