Question

Assume Skysong, Inc. uses the periodic inventory system and has a beginning inventory balance of $5700, purchases of $76000, and sales of $120000. Skysong closes its records once a year on December 31. In the accounting records, the inventory account would be expected to have a balance on December 31 prior to adjusting and closing entries that was

equal to $5700.

more than $5700.

less than $5700.

indeterminate.

Answer 1

Given: Skysong Inc. uses periodic inventory system and has a beginning inventory balance of $5700, purchases of $76000 and sales of $120000.

Under periodic inventory system, the company conducts a physical count of stock to calculate the amount of inventory at the end of the year. All the purchases and sales made between physical inventory counts are updated in a purchases or sales account. Physical inventory counts are time consuming therefore only few companies do them quarterly or yearly. So the inventory account shows the cost of the inventory that was updated when the last physical inventory was counted.

So the inventory account would be expected to have a balance of $5700 on December 31.

Correct option would be equal to $5700.