Accounting Ch 4&5

Costs included in the Merchandise Inventory account can include all of the following except:

Damaged inventory that cannot be sold

A merchandiser:

Earns net income by buying and selling merchandise

During a period of steadily rising costs, the inventory valuation method that yields the highest reported net income is:

FIFO method

Merchandise inventory:

Is a current asset

The following statements regarding merchandise inventory are true except:

Merchandise inventory appears on the balance sheet of a service company

Cost of goods sold:

is the term used for the expense of buying and preparing merchandise for sale

The credit terms 1/15, n/30 are interpreted as:

1% cash discount if the amount is paid within 15 days, or the balance due in 30 days

A company purchased $1,800 of merchandise on July 5 with terms 2/10, n/30. On July 7, it returned $200 worth of merchandise. On July 8, it paid the full amount due. The amount of the cash paid on July 8 equals:

1,800-200 = 1,600 1,600 x .02 = 32 1,600-32 = 1568

Reid, Inc. had sales of $135,000, sales discounts of $2,000, and sales returns of $3,200. Its net sales equals:

135,000-2,000-3,200 = $129,800

A company's inventory records report the following: August 1 Beginning balance 15 units @ $12 August 5 Purchase 10 units @ $13 August 12 Purchase 20 units @ $14 On August 15, it sold 30 units. Using the FIFO perpetual inventory method, what is the value of the inventory at August 15 after the sale?

15@12 10@13 5@14 15@14= 210

A company's inventory records report the following in November of the current year: Beginning November 1 5 units @ $20 Purchase November 2 10 units @ $22 Purchase November 6 6 units @ $25 On November 8, it sold 18 units. Using the LIFO perpetual inventory method, what was the amount recorded in the cost of goods sold account for the 18 units sold?

18 6@25 10@22 2@20 410

Reid, Inc. has sales of $695,000 and cost of goods sold $278,000. Its gross profit equals:

695,000-278,000 = $417,000

Starlight Company has inventory of 8 units at a cost of $200 each on October 1. OnOctober 2, it purchased 20 units at $205 each. 11 units are sold on October 4. Using the LIFO perpetual inventory method, what is the value of inventory after the October 4 sale?

8 @200 20@205 11 11@205 9@205= 1845 8@200= 1600 3445

McCarthy Company has inventory of 8 units at a cost of $200 each on October 1. On October 2, it purchased 20 units at $205 each. 11 units are sold on October 4. Using the FIFO perpetual inventory method, what amount will be reported as cost of goods sold for the 11 units that were sold?

8 @200 20@205 11 8@200= 1600 3@205= 615 2215

Reid, Inc. had $800,000 in sales, sales discounts of $12,000, sales returns and allowances of $18,000, cost of goods sold $380,000, and $275,000 in operating expenses. Its net income equals:

800,000-12,000-18,000-380,000-275,000 = $115,000

April 1 a company sold merchandise for 3,000, granting the customer terms of 2/10 EOM; invoice dated April 1. The cost of the merchandise is 1,800. April 11 received payment for the amount due from April 1

April 1 Accounts Receivable 3,000 Revenue 3,000 Cost of Goods Sold 1,800 Inventory 1,800 April 11 Cash 2,940 Sales discounts 60 Accounts Receivable 3,000

What is the equation for Gross Profit

Gross Profit = net sales - cost of goods sold

March 25 a company purchased $8,500 of merchandise with credit terms of 2/10, net 30. April 4 the invoice from the March 25 purchase was paid in full.

March 25. Merchandise Inventory 8,500 Accounts Payable 8,500 April 4 Accounts Payable 8,500 Merchandise Inventory 170 Cash 8,330

Beginning inventory plus additional purchases made equals:

Merchandise (goods) available for sale

A company recorded the following entry: Accounts Payable. 2,500 Merchandise Inventory. 50 Cash. 2,450 This entry reflects a:

Payment of the account payable less than 2% cash discount taken

Sales returns:

Refer to merchandise that customers return to the seller after the sale

Inventory is a current asset. If you were a business owner who bought and sold inventory, explain why you would not want inventory to be a long-term asset.

You would want to sell your inventory fast to avoid losses. Customers likely will not buy inventory that they deem old or obsolete, causing losses to the company.