### Tetra Company's Inventory and Cost of Goods Sold AnalysisTetra Company acquired inventory in two batches during Year 1. 1. **Initial Purchase**: - **Date**: January 1 - **Units Purchased**: 2,100 - **Cost per Unit**: $2.502. **Second Purchase**: - **Date**: January 12 - **Units Purchased**: 3,100 - **Cost per Unit**: $2.353. **Sales**: - **Date**: January 20 - **Units Sold**: 4,100The company uses the **perpetual inventory method** and follows the **FIFO (First-In, First-Out) flow** method to manage its inventory.### QuestionAssuming the above methods, how would the entry to recognize the cost of goods sold affect the financial statements?### Multiple Choice Options- **Option A**: Increase Inventory and Increase cost of goods sold by $10,050- **Option B**: Increase cost of goods sold and decrease Inventory by $9,950- **Option C**: Increase Inventory and Increase cost of goods sold by $9,950- **Option D**: Decrease cost of goods sold and Increase Inventory by $10,050### ExplanationThe question involves determining the correct accounting entry based on the FIFO method, where the oldest inventory costs are recorded as sold first. Students should consider the impact on both inventory and the cost of goods sold when selecting the correct answer.

Answered: cost of $2.35 each. Tetra Company sold…

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

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### Tetra Company's Inventory and Cost of Goods Sold Analysis

Tetra Company acquired inventory in two batches during Year 1.

1. **Initial Purchase**:
- **Date**: January 1
- **Units Purchased**: 2,100
- **Cost per Unit**: $2.50

2. **Second Purchase**:
- **Date**: January 12
- **Units Purchased**: 3,100
- **Cost per Unit**: $2.35

3. **Sales**:
- **Date**: January 20
- **Units Sold**: 4,100

The company uses the **perpetual inventory method** and follows the **FIFO (First-In, First-Out) flow** method to manage its inventory.

### Question

Assuming the above methods, how would the entry to recognize the cost of goods sold affect the financial statements?

### Multiple Choice Options

- **Option A**: Increase Inventory and Increase cost of goods sold by $10,050

- **Option B**: Increase cost of goods sold and decrease Inventory by $9,950

- **Option C**: Increase Inventory and Increase cost of goods sold by $9,950

- **Option D**: Decrease cost of goods sold and Increase Inventory by $10,050

### Explanation

The question involves determining the correct accounting entry based on the FIFO method, where the oldest inventory costs are recorded as sold first. Students should consider the impact on both inventory and the cost of goods sold when selecting the correct answer.

Expert Solution

Step 1: Explanation of the concept Perpetual inventory method and FIFO

Perpetual Inventory Method: This method involves continuously tracking inventory levels in real-time as goods are bought and sold, providing up-to-date visibility into stock.

FIFO (First-In-First-Out): FIFO is a method for valuing inventory, where the first items purchased are assumed to be the first ones sold, resulting in the cost of goods sold being based on the earliest inventory costs.

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