Tetra Co. uses the perpetual inventory system and a FIFO cost flow method. On January 1, the company purchased 2,000 units of inventory that cost $4.00 each. On January 12, the company purchased an additional 3,000 units of inventory at a cost of $4.20 each. On January 20, Tetra Company sold 4,000 units of inventory. Assuming that Tetra Co. uses the perpetual inventory method and a FIFO cost flow method, how would the entry to recognize the cost of goods sold affect the financial statements?A. Increase inventory and increase cost of goods sold by $16,400B. Decrease cost of goods sold and increase inventory by $16,600C. Increase cost of goods sold and decrease inventory by $16,400D. Increase inventory and increase cost of goods sold by $16,600

C. Increase cost of goods sold and decrease inventory by $16,400

Explanation:

When Inventory is purchased, Debit Inventory and credit Cash/Accounts payable. As Inventories are sold, debit (increase) cost of goods sold (with the cost of the items sold) and Credit (decrease) Inventory account.

Using the first in first out method, the 4,000 units sold must have consisted of the following purchases;

Hence the cost of goods sold

= 2000 * $4 + 2000 * $4.20

= $16,400

the correct answer is - no.

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