27. A company has $2,000 in beginning inventory. It purchases merchandise for $3,500 and debits the purchases account. It sells $4,000 of merchandise during the year. At year end, a physical inventory is taken to determine ending inventory. Which inventory system is being used to track this company's costs?
Answer: D
The periodic inventory system is being used to track this company's costs.
This company employs a periodic inventory system, as evidenced by the fact that a physical inventory is conducted at year-end to determine the ending inventory.
A) Perpetual
The perpetual inventory system continuously updates inventory records for each purchase and sale. In this scenario, the company does not maintain ongoing records of inventory changes throughout the year, as indicated by the reliance on a year-end physical count.
B) Perpetuity
Perpetuity refers to a financial concept related to cash flows that continue indefinitely, not an inventory tracking system. Therefore, it is irrelevant to the context of inventory management in this scenario.
C) Retail
The retail inventory method is a technique used primarily by retailers to estimate inventory based on the cost-to-retail ratio. While this method can be used alongside periodic inventory systems, it does not specifically describe the tracking method used in this case, which is determined by the year-end physical inventory count.
D) Periodic
The periodic inventory system is characterized by assessing inventory levels at specific intervals, such as year-end, rather than continuously. This aligns with the company's practice of conducting a physical inventory count to determine the ending inventory, confirming that a periodic system is in use.
Conclusion
The periodic inventory system is the correct answer as it relies on physical counts at designated times to assess inventory levels, which directly aligns with the company's approach. The other options fail to accurately describe this method, as they either involve continuous tracking or are unrelated concepts.