Accounting exam 2

Assume that we use a perpetual inventory system and that five identical units are purchased at the following four dates and costs: April 5 $10 April 10 $12 April 15 $14 April 20 $16 April 22 $17 One unit is sold on April 25. The company uses the weighted average inventory costing method.Identify the cost of the ending inventory on the balance sheet. (Round your answer to 2 decimal places.) What is cost of ending inventory?

$ 55.20. Under the weighted average method, an average is computed before each sale. On April 22, before the sale, the average unit cost is computed as: ($10 + $12 + $14 + $16 + $17) / 5 = $13.80. The cost of the unit sold is $13.80 and the cost of the ending inventory shown on the balance sheet is $13.80 × 4 units = $55.20.

An item was shipped from a supplier under FOB shipping point. The invoice in the amount of $2,000 included payment terms of 2/10, n/30. When the invoice was paid, a purchase discount in the amount of $40 was taken. Other details relating to the purchase of this item included the following: shipping charges of $300, storage fees of $50, and insurance premium of $100. The cost of this inventory item is _____.

$2,410. Merchandise inventory includes costs of expenditures necessary to bring an item to a salable condition and location. This means that the cost of an inventory item includes its invoice cost minus any discount and plus any incidental costs necessary to put it in a place and condition for sale. Incidental costs can include shipping, storage, and insurance. Invoice price of $2,000 − purchase discount of $40 + shipping charges of $300 + storage fee of $50 + insurance premium of $100 = cost of $2,410.

Beginning inventory $11,000 Ending inventory $13,000 Expenses $7,000 Net purchases $23,000 Net sales $38,000 The company's cost of goods sold equals:

$21,000. Beginning Inventory of $11,000 + Net Purchases of $23,000 = Cost of Goods Available for Sale of $34,000. Then, Cost of Goods Available for Sale of $34,000 (from above) − Ending Inventory of $13,000 = Cost of Goods Sold of $21,000

Beginning inventory $11,000 Ending inventory $13,000 Expenses $7,000 Net purchases $23,000 Net sales $38,000 The company's cost of goods available for sale equals:

$34,000. Beginning Inventory of $11,000 + Net Purchases of $23,000 = Cost of Goods Available for Sale of $34,000.

A company has beginning inventory of $20,000, purchases of $15,000, and ending inventory of $2,500. The cost of goods available for sale is ___.

$35000 Beginning inventory plus net purchases equals goods available for sale. Goods available for sale minus ending inventory equals $20,000 plus $15,000 equals $35,000.

A company reports net sales of $600,000, cost of goods sold of $200,000, and net income of $100,000. Its gross profit equals:

$400,000

Assume that we use a perpetual inventory system and that five identical units are purchased at the following dates and costs: April 5 $10 April 10 $12 April 15 $14 April 20 $16 April 22 $17 One unit is sold on April 25. The company uses the last-in, first-out (LIFO) inventory costing method. Identify the cost of the ending inventory on the balance sheet. What is cost of ending inventory?

$52. Under the LIFO method, the most recently purchased units are sold first, so the cost of goods sold for the one unit sold on April 25 is from the April 22 purchase at $17. The ending inventory will consist of the earliest purchases including April 5 at $10, April 10 at $12, April 15 at $14 and April 20 at $16, for a total of $52.

Assume that we use a perpetual inventory system and that five identical units are purchased at the following dates and costs: April 5 $10 April 10 $12 April 15 $14 April 20 $16 April 22 $17 One unit is sold on April 25. The company uses the first-in, first-out (FIFO) inventory costing method. Identify the cost of the ending inventory on the balance sheet. What is cost of ending inventory?

$59. Under the FIFO method, the earliest units are sold first, so the cost of goods sold for the one unit sold on April 25 is from the April 5 purchase at $10. The ending inventory will consist of the most recent purchases including April 10 at $12, April 15 at $14, April 20 at $16 and April 22 at $17, for a total of $59.

The trial balance of a company included the following account balances: Cash, $25,000; Short-Term Investments, $10,000; Accounts Receivable, $40,000; Inventory, $90,000; and Prepaid Insurance, $12,000. Its quick assets total:

$75,000 Quick Assets = Cash and Cash Equivalents + Short-Term Investments + Current Receivables

Item 15 units Cost $50 Market $45 Item 27 units Cost $60 Market $65 Item 39 units Cost $30 Market $25 Applying the lower of cost or market method, the reported value of this company's ending inventory if LCM is applied to individual items is _____.

$870

Invoice cost of merchandise purchases $110,000 Purchase discounts $15,000 Purchase returns and allowances $7,000 Transportation costs $3,000 The company's total cost of merchandise purchases equals:

$91,000. Invoice cost of $110,000 minus discounts of $15,000 and minus returns and allowances of $7,000 plus transportation costs of $3,000 equals $91,000.

What are examples of Plant Assets (Fixed Assets)?

Equipment, Machinery, Buildings, and Land that are used to sell products and services.

What is Equity?

Equity is the Owner's claim on the assets.

A seller uses a perpetual inventory system, and on April 18, a customer discovers that merchandise previously purchased is defective. The buyer decides to keep the defective merchandise and the seller allows a $15 price reduction, paid in cash to the buyer.

Even though the merchandise is not returned, the debit is to Sales Returns and Allowances, and the credit is to Cash in the amount of $15. Because the merchandise was not returned, there is no entry to restore the inventory or reduce the cost of goods sold.

Merchandise inventory includes all of the following except: - Goods held for sale - Goods located in the warehouse - Goods sold - Goods located in an off-site warehouse

Goods sold

Luring Company had net sales of $600,000, cost of goods sold of $200,000, and net income of $100,000. Its gross margin equals

Gross Margin = Net Sales of $600,000 − Cost of Goods Sold of $200,000 = $400,000.

Network Systems, Incorporated, had net sales of $750,000, cost of goods sold of $562,500, and net income of $100,000. Its gross margin ratio is closest to:

Gross Margin Ratio = ($750,000 − $562,500) ÷ $750,000 = $187,500 ÷ $750,000 = 0.25 = 25%.

Sales $250,000. Sales Discounts $1,500. Sales Returns and Allowances $2,300. Sales salaries expense $56,000. Store supplies expense $15,000. advertising expense $8,000. Cost of goods sold $125,000. What is the gross profit that would appear on a multiple-step income statement:

Gross profit equals net sales minus cost of goods sold. Net sales equals sales minus sales discounts and minus sales returns and allowances. Sales $250,000 − $1,500 − $2,300 − $125,000 = $121,200.

How long is a Current asset expected to be used or sold?

It is expected to be sold, collected, or used within one year.

What is a Purchase Return?

Merchandise returned by the purchaser to the supplier.

What are examples of Long-term Liabilities?

Notes payable, Mortgages payable, bonds payable, and lease obligations.

What are examples of Long-term Investments?

Notes receivable and investments in stocks and bonds expected to be held for more than longer of one year or the operating cycle.

A company uses a periodic inventory system. On August 1, the company had 6 items of beginning inventory with a cost of $7 per unit. On August 3, the company purchased 16 units at $14 per unit. Then, on August 5, the company sold 12 units. The 12 units sold consisted of 7 units from the August 3rd purchase and 5 units from the August 1st beginning inventory. Using specific identification, the cost of the 12 units sold is _____.

Specific identification assigns costs based on the actual units sold. 7 units sold were from the August 3 purchase and the remaining 5 units sold were from the beginning inventory, to the total cost of the units sold is:(7 × $14) + (5 × $7) = $133.

What are the Five Steps of a for a Worksheet?

Step 1: Enter unadjusted Trial Balance Step 2: Enter Adjustments Step 3: Prepare adjusted Trial Balance Step 4: Sort adjusted Trial Balance amounts to Financial Statements Step 5: Total Statement Columns, compute Income or Loss, and Balance Columns

The company has an unadjusted debit balance in Accounts Receivable of $25,000 and an unadjusted credit balance of $10 in Allowance for Sales Discounts as of December 31. Of the $25,000 of receivables, $10,000 are within a 2% discount period that the company expects the buyers to take.

Step 1: The current unadjusted balance in Allowance for Sales Discounts is $10 credit. Step 2: The adjusted balance in Allowance for Sales Discounts should be $200 credit (computed as the $10,000 of receivables within the discount period × 2%). Step 3: The entry to get from step 1 to step 2 includes a debit to Sales Discounts for $190 (computed as $200 credit minus $10 credit) and a credit to Allowance for Sales Discounts for the same amount.

On December 31, the company estimates future sales refunds to be $900. As of that date, the company has an unadjusted debit balance in Accounts Receivable of $25,000 and an unadjusted credit balance of $300 in Sales Refunds Payable.

Step 1: The current unadjusted balance in Sales Returns and Allowances is $300 credit. Step 2: The company estimates future sales refunds to be $900, which means that the adjusted balance in Sales Refund Payable should be $900 credit. Step 3: The entry to get from step 1 to step 2 includes a credit to Sales Refund Payable (computed as $900 credit minus $300 credit) for $600 and a debit to Sales Returns and Allowances for the same amount.

What accounts only apply to the closing process?

Temporary accounts (Revenues, Expenses, Withdrawals, and Income Summary).

What is FOB shipping points terms?

The buyer owns the goods well in transit and is responsible for any transportation costs.

Roberto Company uses a perpetual inventory system. On December 1, the company purchased $3,300 of merchandise for cash.

The buyer uses a perpetual inventory system; therefore, the cost of the merchandise purchased for resale is recorded with a $3,300 debit to Merchandise Inventory, an asset account. Because cash is paid, it is reduced with a $3,300 credit.

A buyer uses a perpetual inventory system, and it purchases merchandise on terms of FOB shipping point. On December 20, the shipping company sends an invoice for $125 to the party responsible for the freight charges, and cash payment is made immediately.

The company's purchase on terms of FOB shipping point means that the title transfers at shipping point when the goods are accepted by the carrier. As such, the buyer owns the goods while they are in transit and is responsible for paying transportation costs. The cost principle requires that any necessary transportation costs of a buyer be included as part of the cost of purchased merchandise. The company will debit the $125 freight charge to Merchandise Inventory and credit Cash.

Peron Company uses a perpetual inventory system and the net method of recording invoices. The company purchased merchandise on November 4 at a $2,000 invoice price with terms of 2/10, n/30.

The net method initially records the invoice at its net amount of any cash discount, which is $1,960 or the invoice amount of $2,000 × (100% − the discount percent of 2%). Because the company uses the perpetual inventory method, this amount is debited to Merchandise Inventory. The credit is to Accounts Payable.

A seller uses a perpetual inventory system and on April 4 it sells $5,000 in merchandise with a cost of $2,400 to a customer on credit terms of 3/10, n/30.

The revenue part of this transaction is recorded with a debit to Accounts Receivable and a credit to Sales for $5,000. The cost part of this transaction ensures that the Merchandise Inventory account reflects the updated cost of the merchandise available for sale, which means the Merchandise Inventory account is reduced with a credit, and the related expense is recorded with a debit to the Cost of Goods Sold account in the amount of $2,400 (which is the cost of the merchandise sold).

A seller uses a perpetual inventory system, and on April 17, a customer returns $1,000 of merchandise previously purchased on credit on April 13. The seller's cost of the merchandise returned was $480. The merchandise is not defective and is restored to inventory. The seller has not yet received any cash from the customer.

The revenue part of this transaction must reflect the decrease in sales from the customer's return of merchandise. The debit is to Sales Returns and Allowances, and the credit is to Accounts Receivable for $1,000. Because the merchandise was restored to inventory (it was not defective and can be resold to another customer), the Merchandise Inventory account is increased with a debit (because inventory increased), and the Cost of Goods Sold account is decreased with a credit (because these goods are not now sold) in the amount of $480, the cost of the merchandise returned.

The company's adjusted trial balance includes the following accounts balances: Cash, $15,000; Equipment, $85,000; Accumulated Depreciation, $25,000; Accounts Payable, $10,000; Retained earnings, $63,500; Dividends, $2,000; Sales, $56,000; Sales Returns and Allowances, $3,000; Sales Discounts, $1,500; Depreciation Expense, $25,000; and Salaries Expense, $23,000. All accounts have normal balances.

The second closing entry closes all temporary accounts with a debit balance. Temporary accounts with a debit balance are credited and the Income Summary account is debited for the total. The temporary accounts with a debit balance include Depreciation Expense, $25,000; Salaries Expense, $23,000; Sales Discounts, $1,500 and Sales Returns and Allowances, $3,000. The total of $52,500 is debited to Income Summary.

What is FOB destinations terms?

The seller owns the goods well in transit and is responsible for transportation costs.

A company overstated its ending inventory at the end of Year 1. If the error was not detected, cost of goods sold would be _____ for Year 1.

Understated

A company sells merchandise on November 2 at a $4,000 invoice price with terms of 2/10, n/30. The goods cost $2,000. The company uses the net method to record invoices. The customer pays the balance due on November 30.

When the net method is used to record invoices, the invoice is initially recorded at its net amount, computed as $4,000 less the $80 discount, or $3,920. As a result, the entry to record the sale on November 2 would have included a debit to Accounts Receivable for $3,920 [computed as the invoice amount of $4,000 less the discount of $80 (or $4,000 × 0.02)] and a credit to Sales for the same amount. The invoice was not paid within the 10-day discount period; as a result, the customer did not take advantage of the discount. The entry to record the receipt of cash from the customer includes a debit to Cash for $4,000 (the invoice amount), a credit to Interest Revenue for $80 (the amount of the discount not taken), and a credit to Accounts Receivable for $3,920 (the amount originally recorded in this account).

Colman Company reports ending inventory in year 1 of $25,000 instead of the correct amount of $20,000. The effects of this error include:

Year 1 ending inventory is overstated and year 1 cost of goods sold is understated

What is Gross profit?

equal to net sales less cost of goods sold.

What are examples of Intangible Assets?

patents, trademarks, copyrights, franchises, and goodwill.

Each of the following are examples of a merchandising company except: - Michael's Lawn Mowing. - Becky's Jewelry. - Sigmund's Hardware. - Manny's Clothing.

- Michael's Lawn Mowing.

What are the benefits of a worksheet?

- Reduces Risk of errors - Helps in preparing financial statements - Links accounts and adjustments to financial statement - Shows the effects of proposed transactions

Merchandise inventory includes: - costs to purchase - costs to sell - shipping costs - costs to prepare for sale - cost of goods sold

- costs to purchase - costs to sell - shipping costs - costs to prepare for sale

Quick Assets $11,000 Current Liabilities $13,000 The company's acid-test ratio equals:

0.85 The acid-test ratio is computed by dividing quick assets by current liabilities. $11,000 / 13,000 = 0.85 (rounded).

What is a Purchase Allowance?

A price reduction to the buyer of defective or unacceptable merchandise.

What are examples of Current Liabilities?

Accounts payable, Wages payable, Taxes payable, Interest payable, and Unearned Revenue.

A seller uses a perpetual inventory system and on April 4 it sells $5,000 in merchandise to a customer on credit terms of 3/10, n/30. On April 13, the seller receives payment from the customer.

Because only nine days have passed since the invoice date, the payment is being made within the discount period. As such, the customer will subtract the discount before making the payment. (The customer is said to be "paying in full" because nothing will be owed after payment is made.) Credit terms were 3/10, n/30; because the invoice is paid within the discount period, the buyer can reduce the amount due by 3% (or 0.03). The following explains the entry required: (1) Debit Cash for $4,850 ($5,000 amount due − $150 discount). (2) Debit Sales Discounts for $150 ($5,000 amount due × 3% discount). (3) Credit Accounts Receivable for $5,000 ($5,000 amount due − $0 returns and allowances).

A buyer uses a perpetual inventory system, and it purchased $4,000 of merchandise on credit terms of 2/10, n/30 on December 5. Later, on December 15, the buyer pays the invoice in full.

Because payment is made within 10 days of the invoice date, it is made within the discount period. As such, the buyer will subtract the discount before making the payment. (The buyer is said to be "paying in full" because nothing will be owed after payment is made.) Payment terms were 2/10, n/30 and because payment occurs within the discount period, the buyer reduces the amount due by 2% (or 0.02). In sum, the entry must: (1) Debit Accounts Payable for $4,000 (The amount due is $4,000 less returns and allowances of $0 (none).) (2) Credit Merchandise Inventory for $80 (The amount due of $4,000 × 2% discount.) (3) Credit Cash for $3,920 (The amount due of $4,000 less the $80 discount.)

A buyer uses a perpetual inventory system, and on December 7, it contacts its supplier to report that some of the merchandise purchased on December 5 was defective. The seller offered to reduce the merchandise price by $400. The buyer agreed to keep the defective merchandise under those terms.

Because the allowance reduces the amount due and the cost of the merchandise, the amount of the allowance granted is debited to Accounts Payable and credited to Merchandise Inventory.

A buyer uses a periodic inventory system, and on December 5, it purchases $4,000 of merchandise on credit terms of 2/10, n/30. What is the journal entry?

Because the buyer uses a periodic inventory system, the cost of the merchandise purchased for resale is recorded with a debit to the Purchases account that accumulates the cost of all purchase transactions during each period. Because the purchase was on credit (or on account), the credit is to Accounts Payable.

Which of the following statements is correct regarding inventory shrinkage?

Both statements are correct.

Which statement is correct regarding the closing process of a merchandiser?

Both the Sales Discounts and the Sales Returns and Allowances accounts are credited during the closing process.

Examples of Current Assets?

Cash, Short-term investments, accounts receivable, Short-term notes receivable, Merchandise Inventory, and prepaid expenses.

When a classified balance sheet is prepared, merchandise inventory is reported as a ________?

Current Asset

What is the Current Ratio formula?

Current Ratio = Current Assets / Current Liabilities