Chapter 6, Problem 1STQ

To determine

Identify the correct statements.

Answer to Problem 1STQ

Option (a), (b), and (d) are correct answer.

Option (a): The appliance store has a longer operating cycle than the restaurant.

Option (b): The appliance store probably uses a perpetual inventory system, whereas the restaurant probably uses a periodic system.

Option (c): Both businesses probably have subsidiary ledgers for accounts payable.

Explanation of Solution

Option (a): Generally the merchandising company will have the longer operating cycle, as it have the receivables and inventory. But, the restaurants will not have the receivables. Thus, the appliance store has the longer operating cycle. Hence, Option (a) is correct answer.

Option (b): As the appliance store will deals with the huge number of inventory and receivables, it is necessary to keep the up to date records of the inventory or cost of goods sold, thus it is using perpetual inventory system. In restaurants, it is not necessary to keep the up to date information and there is no such inventories and receivables, thus it is using periodic inventory system. Thus, Option (b) is correct answer.

Option (c): It is not mandatory that both the businesses would require subsidiary ledgers for accounts receivables and inventory. Thus, Option (c) is not correct answer.

Option (d): It is probable that both the business will have subsidiary ledger for accounts payable as the company will purchase the goods from the vendors for credit. Thus, option (d) is the correct answer.

As per the above explanation, Option (c) is not correct answer. Hence, Option (a), (b), and (d) are correct answer.

Conclusion

Thus, Option (a), (b), and (d) are correct answer.