Question

A company sells goods for $150,000 that cost $54,000 to manufacture. Which statement is true?
a. The company will recognize $96,000 gross profit on the balance sheet.
b. The company will decrease finished goods by $54,000.
c. The company will increase finished goods by $54,000.
d. The company will recognize sales on the balance sheet of $150,000.

Answer 1

Answer:

Option B is the correct answer.

Explanation:

The sale of finished goods worth $54000 for an amount of $150000 will require us to recognize a revenue of $150000 and a reduction in inventory of finished goods worth $54000.

Option a is incorrect as the gross profit is not recognized on balance sheet. The gross profit is an income statement item.

Option c is incorrect as the sale of finished goods will cause a reduction in the finished goods inventory for the amount of goods sold.

Option d is incorrect as the sale will be recognized in sales revenue on the profit and loss statement and not on the balance sheet as revenue is a profit and loss statement account.

Thus, option b is the correct answer as the sale of finished goods will be represented by a reduction in finished goods inventory by the cost of the goods sold which is $54000.