accounting chapter 5
Best Discount Store uses the perpetual system for inventory and had a sale on account to Mark Watson of $3,000 with terms 1/10 or n/30. Before payment, Mr. Watson returned $1,000 of the merchandise. Mr. Watson paid within the discount period. What is the amount of cash Best Discount Store received? -$1,980 -$2,000 -$1,970 -$2,970
$1,980 The balance of Accounts Receivable after the return would be $2,000 ($3,000 - $1,000 return). The discount would be $2,000 * .01 = $20. The balance in Accounts Receivable of $2,000 - $20 discount = $1,980 Cash that is received.
Sales Revenue is $300,000, Cost of Goods Sold is $200,000, and Operating Expenses are $50,000 for the period. What is Gross Profit? -$500,000 -$100,000 -$50,000 -$550,000
$100,000 Sales Revenue - Cost of Goods Sold = Gross Profit. So, Gross Profit is $300,000 - $200,000 = $100,000. Operating expenses are not subtracted out to get Gross Profit, but subtracted from Gross Profit to get Net Income.
ACB Manufacturing purchased $6,000 of merchandise inventory from a vendor on account with credit terms of 2/10 or n/30. Because some of the merchandise was damaged, ACB Manufacturing returned $1,000 of the merchandise two days later. ACB Manufacturing uses the perpetual inventory system and made payment for the merchandise, less the return, within the discount period. What is the final cost of the merchandise inventory for ACB manufacturing from this purchase? -$5,000 -$4,900 -$4,880 -$5,880
$4,900 After the return of $1,000, the company has $5,000 worth of inventory. If they pay within the discount period, they will be able to reduce the price paid by 2% of the $5,000 purchase price or $100. After the discount, the cost of the merchandise inventory is $5,000 - $100 = $4,900. To calculate using a formula, the cost of merchandise inventory = (Cost - return) * (1 - discount). So ($6,000 - $1,000) * (1 - .02) = $4,900.
On the multi-step income statement, assume that Operating Income is $10,000, Interest Expense is $1,000, and income tax rate is 30%. What is the Net Income? -$2,700 -$6,300 -$7,700 -$3,300
$6,300 Net Income = Operating Income - Interest Expense * (1 - tax rate). In this case, ($10,000 - $1,000) * (1 - .3) = $6,300. To expand this more, the income before Income Tax Expense is calculated as Operating Income less Interest Expense or $10,000 - $1,000 = $9,000. If income taxes are 30% of this amount, Income Tax Expense is 30% x $9,000 = $2,700. Net Income is Income before Income Tax Expense less Income Tax Expense or $9,000 - $2,700 = $6,300.
Assume ABC Company has the following information for the multi-step income statement: Net Sales Revenue: $11,000 Cost of Goods Sold: 4,400 Interest Expense: 500 Salaries Expense: 700 Rent Expense: 300 What is the amount of Gross Profit? -$5,600 -$5,100 -$6,600 -$10,000
$6,600 Gross Profit is calculated by taking Net Sales Revenue - Cost of Goods Sold. So Gross Profit = $11,000 - $4,400 = $6,600.
Jones Manufacturing purchased $10,000 of merchandise inventory on account from a vendor and paid a $500 freight bill. The credit terms are 2/10 or n/30. Because some of the merchandise was not needed, Jones Manufacturing returned $2,000 the same day. Jones Manufacturing uses the perpetual inventory system and made payment for the merchandise, less the return, within the discount period. What is the final cost of the merchandise inventory for Jones Manufacturing from this purchase? -$8,000 -$8,340 -$7,840 -$10,094
$8,340 Returns have to be taken away from purchases before the discount is calculated. Freight is part of the cost, but does not have a discount taken on it. To calculate use (Cost - returns) * (1 - discount) + shipping cost. The formula would be (10,000- 2,000) * (1 - .02) = 7,840 + 500 = 8,340.
Stan's Discount Floor Covering made Net Sales Revenue of $100,000 and the Cost of Goods Sold totaled $60,000. What is the gross profit percentage for this period? -60% -20% -30% -40%
40% First, calculate Gross Profit by taking Net Sales Revenue - Cost of Goods Sold. In this case, $100,000 - 60,000 = $40,000 Gross Profit. To calculate gross profit percentage, divide Gross Profit by Net Sales Revenue ($40,000 / $100,000) = 40%.
Assume that Jones Company has an unadjusted balance in Merchandise Inventory of $100,000. Due to shrinkage, a physical inventory shows that Merchandise Inventory is actually $99,000. The journal entry to record the needed adjustment would be: -Merchandise Inventory: 1,000 debit Cash: 1,000 credit -Cash: 1,000 debit Merchandise Inventory: 1,000 credit -Cost of Goods Sold: 1,000 debit Merchandise Inventory: 1,000 credit -Merchandise Inventory: 1,000 debit Cost of Goods Sold: 1,000 credit
Cost of Goods Sold: 1,000 debit Merchandise Inventory: 1,000 credit To adjust for the lower amount of merchandise, the Cost of Goods Sold is Debited and Merchandise Inventory is credited.
Abbott Company paid $100 in freight charges to ship goods to a customer and did not charge the customer for the freight. Abbott uses the perpetual system. The journal entry to record this transaction would be: -Cost of Goods Sold: 100 debit Cash: 10 credit -Cash: 100 debit Cost of Goods Sold: 100 credit -Delivery Expense: 100 debit Cash: 100 credit -Cash: 100 debit Delivery Expense: 100 credit
Delivery Expense: 100 debit Cash: 100 credit When the seller pays the shipping costs, it is a debit to Delivery Expense and a credit to Cash.
Which of the following does NOT appear on the single-step income statement for a merchandiser: -Gross Profit -Total Expenses -Cost of Goods Sold -Net Sales Revenue
Gross profit Gross Profit does not appear on the single-step income statement as Cost of Goods Sold is listed with the other expenses.
Which of the following accounts do you typically see on a merchandising business's Balance Sheet that you do NOT see on the Balance Sheet of a service business? -Cash -Accounts Receivable -Prepaid Rent -Merchandise Inventory
Merchandise inventory A service business offers a service and does not sell merchandise. Therefore, Merchandise Inventory is on the Balance Sheet as a Current Asset for a merchandising business, but not a service business.
On the merchandiser's multi-step income statement, Gross Profit less Total Operating Expense is referred to as: -Total Other Revenues and Expenses -Total Income Tax -Operating Income -Total Sales Revenue
Operating income Gross Profit less Total Operating Expenses is the Operating Income.
Abbott Company purchased inventory of $15,000 on account and uses the periodic system. The journal entry for the purchase would be: -Purchases: 15,000 debit Accounts Payable: 5,000 credit -Merchandise Inventory: 15,000 debit Accounts Payable: 15,000 credit -Accounts Payable: 15,000 debit Merchandise Inventory: 15,000 credit -Accounts Payable: 15,000 debit Purchases: 15,000 credit
Purchases: 15,000 debit Accounts Payable: 5,000 credit When using the periodic system, purchases are recorded in the Purchases account as a debit (instead of Merchandise Inventory) and Accounts Payable as a credit.
A customer returned $3,000 of merchandise that was previously purchased on account before the bill was paid. The cost of goods sold was $1,300. The perpetual system is used. When recording the return of the merchandise, the seller records: -Refunds Payable: 3,000 debit Accounts Receivable: 3,000 credit Costs of Goods Sold: 1,300 debit Merchandise Inventory: 1,300 credit -Accounts Receivable: 3,000 debit Refunds Payable: 3,000 credit Merchandise Inventory: 1,300 debit Cost of Goods Sold: 1,300 credit -Accounts Receivable: 3,000 debit Refunds Payable: 3,000 credit Costs of Goods Sold: 1,300 debit Merchandise Inventory: 1,300 credit -Refunds Payable: 3,000 debit Accounts Receivable: 3,000 credit Merchandise Inventory: 1,300 debit Estimated Returns Inventory: 1,300 credit
Refunds Payable: 3,000 debit Accounts Receivable: 3,000 credit Merchandise Inventory: 1,300 debit Estimated Returns Inventory: 1,300 credit When a customer returns merchandise to the seller, the seller records two journal entries. Debit Refunds Payable and credit Accounts Receivable for the amount returned at sales price. Debit Merchandise Inventory and credit Estimated Returns Inventory for the merchandise returned at cost.
Grant Manufacturing purchased $10,000 of merchandise inventory on account from a vendor and was billed $300 for freight. The credit terms are 2/10, n/30. Because some of the merchandise was not what was ordered, Grant Manufacturing returned $2,000 the same day. Grant Manufacturing uses the perpetual inventory system and made payment for the merchandise, less the return, within the discount period. The journal entry to record the payment after the return within the discount period would be:
The Accounts Payable balance would be $10,000 + $300 billed for shipping - $2,000 return = $8,300. Accounts Payable is debited as it is being decreased (balance paid off). Merchandise Inventory is credited for the amount of the discount, calculated by taking $10,000 purchase - $2,000 return = $8,000 * .02 = $160. Shipping is part of Accounts Payable, but it is not discounted. Cash would be the Accounts Payable $8,300 - $160 credit to Merchandise Inventory = $8,140.
ACB Manufacturing purchased $3,000 of merchandise inventory on account. The journal entry for the purchase of merchandise inventory on account using the perpetual inventory system is:
To record the purchase of merchandise on account, debit Merchandise Inventory and credit Accounts Payable.
Deca Manufacturing purchased $12,000 of merchandise inventory on account from a vendor and was billed $200 for freight. The credit terms are 1/10, n/30. Because some of the merchandise was not what was ordered, Deca Manufacturing returned $3,000 the same day. Deca Manufacturing uses the perpetual inventory system and made payment for the merchandise, less the return, within the discount period. The journal entry to record the payment after the return within the discount period would be: -accounts payable: 9,200 debit cash: 9,108 credit merchandise inventory: 92 credit -accounts payable: 9,200 debit cash: 9,110 credit merchandise inventory: 90 credit -accounts payable: 12,200 debit cash: 12,078 credit merchandise inventory: 122 credit -accounts payable: 12,200 debit cash: 12,080 credit merchandise inventory: 120 credit
accounts payable: 9,200 debit cash: 9,110 credit merchandise inventory: 90 credit The Accounts Payable balance would be $12,000 + $200 billed for shipping - $3,000 return = $9,200. Accounts Payable is debited as it is being decreased (balance paid off). Merchandise Inventory is credited for the amount of the discount, calculated by taking $12,000 purchase - $3,000 return = $9,000 * .01 = $90. Shipping is part of Accounts Payable, but it is not discounted. Cash would be the Accounts Payable $9,200 - $90 credit to Merchandise Inventory = $9,110.
Best Discount Store uses the perpetual system and had sales on account of $5,000 with terms 3/10, n/30. The goods cost is $2,000. The journal entry to record the sale on account would be: -accounts receivable: 4,850 debit sale revenue: 4,850 credit merchandise inventory: 2,000 debit cost of goods sold: 2,000 credit -accounts receivable: 5,000 debit sales revenue: 5,000 credit cost of goods sold: 2,000 merchandise inventory: 2,000 -accounts receivable: 4,850 debit sales revenue: 4,850 credit cost of goods sold: 2,000 debit merchandise inventory: 2,000 credit -sales revenue: 5,000 debit accounts receivable: 5,000 credit merchandise inventory: 2,000 debit cost of goods sold: 2,000 credit
accounts receivable: 4,850 debit sales revenue: 4,850 credit cost of goods sold: 2,000 debit merchandise inventory: 2,000 credit For the sale, Accounts Receivable is debited and Sales Revenue is credited less the discount, so the amount would be (5,000 - (5,000 * .03) = $4,850. When merchandise is sold, it needs to be moved to Cost of Goods Sold and out of Merchandise Inventory (debit Cost of Goods Sold, credit Merchandise Inventory).
Best Discount Store uses the perpetual system and had a sale on account to Julie Smith of $5,000 with terms 3/10, n /30. Ms. Smith paid within the discount period. The journal entry to record receiving payment from the sale on account would be: -Accounts receivable: 4,850 debit sales revenue: 4,850 credit -accounts receivable: 5,000 debit cash: 5,000 credit -cash: 5,000 debit accounts receivable: 5,000 credit -cash: 4,850 debit accounts receivable: 4,850 credit
cash: 4,850 debit accounts receivable: 4,850 credit The amount of discount of $150 (.03 * 5,000) was already taken off of Accounts Receivable and Service Revenue at the time the revenue was recorded. The amount owed to us by Ms. Smith and to be paid is $4,850 ($5,000 - $150). The $4,850 needs to be taken out of Accounts Receivable (credit) and $4,850 is received in Cash (debit).
Best Discount Store uses the perpetual system and had a sale on account to Julie Smith of $5,000 with terms 3/10, n/30. Ms. Smith did NOT pay within the discount period. The journal entry to record receiving payment from the sale on account would be: -cash: 5,000 debit accounts receivable: 4,850 credit sales discount forfeited: 150 credit -cash: 4,850 debited sales discount forfeited: 150 debited accounts receivable: credited -cash: 5,000 debited accounts receivable: 5,000 credited -cash: 4,850 debited accounts receivable: 4,850 credited
cash: 5,000 debit accounts receivable: 4,850 credit sales discount forfeited: 150 credit If not paid within the discount period, the full amount of $5,000 is due. Since the transaction at the time of the sale would have taken the $150 ($5,000 * .03) discount away from the debit to Accounts Receivable and credit to Service revenue, the $150 discount is forfeited. So Cash is debited for the full amount of $5,000, Sales Discounts Forfeited is credited for the discount of $150, and Accounts Receivable is credited for the amount from the original entry of $4,850.
ACB Manufacturing uses the perpetual inventory system and purchased $4,000 of merchandise inventory on account. The seller prepays $200 in freight charges which were added to ACB Manufacturing's invoice. The journal entry for the purchase of merchandise on account using the perpetual inventory system is: -merchandise inventory: 4,000 debit delivery expense: 200 debit accounts payable: 4,200 credit -merchandise inventory: 4,000 debit accounts payable: 4,000 credit -merchandise inventory: 4,200 debit cash: 4,200 credit -merchandise inventory: 4,200 debit accounts payable: 4,200 credit
merchandise inventory: 4,200 debit accounts payable: 4,200 credit Since the freight is paid by the seller but billed to the buyer, it is added to the buyer's invoice. The buyer then records it as part of the merchandise and accounts payable, so you debit Merchandise Inventory for the total of merchandise and shipping ($4,000 + 200 = $4,200) and credit Accounts Payable for the same amount.
Timber Manufacturing uses the perpetual inventory system and purchased $6,000 of merchandise inventory on account. The seller prepays $300 in freight charges which were added to Timber Manufacturing's invoice. The journal entry for the purchase of merchandise on account using the perpetual inventory system is: -merchandise inventory: 6,000 debit delivery expense: 300 debit accounts payable: 6,300 credit -merchandise inventory: 6,000 debit accounts payable: 6,600 credit -merchandise inventory: 6,300 debit cash: 6,300 credit -merchandise inventory: 6,300 debit accounts payable: 6,300 credit
merchandise inventory: 6,300 debit accounts payable: 6,300 credit Since the freight is paid by the seller but billed to the buyer, it is added to the buyer's invoice. The buyer then records it as part of the merchandise and accounts payable, so you debit Merchandise Inventory for the total of merchandise and shipping ($6,000 + 300 = $6,300) and credit Accounts Payable for the same amount.
Which of the following would NOT appear on the single-step income statement for a merchandiser: -Net Income -Cost of Goods Sold -Operating Income -Net Sales Revenue
operating income Operating Income does not appear on the single-step income statement, which groups all revenues together and all expenses together without calculating other subtotals.
Smith Company purchased inventory of $2,000 on account and uses the periodic system. The journal entry for the purchase would be: -purchases: 2,000 debit accounts payable: 2,000 credit -merchandise inventory: 2,000 debit accounts payable: 2,000 credit -accounts payable: 2,000 debit merchandise inventory: 2,000 credit -accounts payable: 2,00 debit purchases: 2,000 credit
purchases: 2,000 debit accounts payable: 2,000 credit When using the periodic system, purchases are recorded in the Purchases account as a debit (instead of Merchandise Inventory) and Accounts Payable as a credit.
