ACCT EXAM 2

Ending Merchandise Inventory equation

number of units on hand x unit cost

Net Cost of Inventory Purchased Equation

purchase cost of inventory - purchase returns and allowances - purchase discounts + freight in

FOB shipping point

the buyer takes ownership to the goods after the goods leave the seller's place of business

A current ratio that has increased from the prior period indicates an improvement in the​ company's ability to pay its current debts. True or False?

true

A wholesaler is a merchandiser who buys goods from a manufacturer and then sells the goods to retailers. True or False?

true

A worksheet can be used to help prepare the financial statements. True or false?

true

An invoice is also known as a bill. true or false?

true

Businesses strive to sell merchandise inventory quickly because the merchandise inventory generates no profit until it is sold. True or False?

true

Freight charges to ship goods to customers is recorded as a debit to Delivery Expense. True or False?

true

Given the same purchase and sales​ data, and assuming the cost of inventory is​ rising, the costing methods for inventory will result in different amounts for cost of goods sold. True or False?

true

Inventory turnover measures the number of times a company sells its average level of merchandise inventory during a period. True or False?

true

Merchandise inventory is included in a merchandising​ company's current assets. true or false?

true

The Depreciation Expense account is a temporary account. true or false?

true

The consistency principle states that a business should use the same accounting methods and procedures from period to period. True or False?

true

The loss of inventory that occurs because of​ theft, damage, and errors is referred to as inventory shrinkage. True or False?

true

The post−closing trial balance shows the updated​ Owner, Capital balance True or false?

true

The steps of the accounting cycle are followed throughout the accounting period. True or False?

true

in the worksheet, the adjusted balance of the Service Revenue account appears in the credit column of the income statement. true or false?

true

the accounts receivable account is a permanent account true or false?

true

the salaries payable account is a permanent account true or false?

true

Cost of Goods Sold Equation

# of units sold x unit cost

Average Merchandise Inventory

(Beginning Inventory + Ending Inventory) / 2

Order of financial statement preparation

1. income statement 2. statement of owners equity 3. balance sheet

Days' Sales in Inventory Ratio

365/inventory turnover

Consistency Principle

A business should use the same accounting methods and procedures from period to period.

merchandiser

A business that sells merchandise, or goods, to customers.

wholesaler

A type of merchandiser that buys goods from manufacturers and then sells them to retailers

Which of the following would be considered the weakest current​ ratio? A. 0.35 B. 1.25 C. 1.00 D. 2.50

A. 0.35

Assume Juniper Natural DyesJuniper Natural Dyes made Net Sales Revenue of $ 90 comma 000$90,000 and Cost of Goods Sold totaled $ 58 comma 000$58,000. What was Juniper Natural Dyes'Juniper Natural Dyes's gross profit percentage for this​ period? (Round your answer to the nearest whole​ percent.) A. 36​% B. 3.4 times C. 64​% D. 17​%

A. 36​%

Which of the following accounts would be closed at the end of the year using the perpetual inventory​ system? A. Cost of Goods Sold B. Merchandise Inventory C. Accounts Receivable D. Accounts Payable

A. Cost of Goods Sold

Suppose​ Dave's Discount's Merchandise Inventory account showed a balance of​ $8,000 before the​ year-end adjustments. The physical count of goods on hand totaled​ $7,400. Dave uses a perpetual inventory system. To adjust the​ accounts, which entry would the company​ make? A. Cost of Goods Sold Merchandise Inventory B. Merchandise Inventory Accounts Receivable C. Accounts Payable Merchandise Inventory D. Merchandise Inventory Cost of Goods Sold

A. Cost of Goods Sold Merchandise Inventory

Which of the following are NOT included in a post-closing trial​ balance? A. Revenues and expenses B. Assets and liabilities C. Owner, Capital and assets D. Owner, Capital and liabilities

A. Revenues and expenses

he ending merchandise inventory for the current year is overstated by $ 20 comma 000$20,000. What effect will this error have on the following​ year's net​ income? A. The net income will be understated by $20,000. B. The net income will be overstated by $20,000. C. The net income will be overstated by $40,000. D. The net income will be understated by $40,000.

A. The net income will be understated by $20,000.

The two main inventory accounting systems are the A. perpetual and periodic. B. purchase and sale. C. returns and allowances. D. cash and accrual.

A. perpetual and periodic.

A company made net sales revenue of $ 550 comma 000$550,000​, and cost of goods sold totaled $ 192 comma 500$192,500. Calculate its gross profit percentage. A.325​% B. 65​% C. 125​% D. 35​%

B. 65​%

The process by which companies produce their financial statements for a specific period is called the​ ________. A. closing process B. accounting cycle C. operating cycle D. opening process

B. accounting cycle

Which of the following states that a company must perform strictly proper accounting only for items that are significant to the​ business's financial​ statements? A. consistency principle B. materiality concept C. disclosure principle D. conservatism

B. materiality concept

Which of the following is not included in a perpetual inventory​ record? A. cost per unit B. unit selling price C. identification of the inventory item D. quantity on hand

B. unit selling price

JC ManufacturingJC Manufacturing purchased inventory for $ 5 comma 300$5,300 and also paid a $ 260$260 freight bill. JC ManufacturingJC Manufacturing returned 4545​% of the goods to the seller and later took a 22​% purchase discount. Assume JC ManufacturingJC Manufacturing uses a perpetual inventory system. What is JC ManufacturingJC Manufacturing​'s final cost of the inventory that it​ kept? (Round your answer to the nearest whole​ number.) A. $2,997 B. $2,337 C. $3,117 D. $2,857

C. $3,117

The Merchandise Inventory account of a company shows a balance of​ $50,000 but a physical count of inventory shows​ $41,000 Which of the following entries is required to record the​ shrinkage? (Assume a perpetual inventory​ system.) A. Cash Merchandise Inventory B. Merchandise Inventory Cost of Goods Sold C. Cost of Goods Sold Merchandise Inventory D. Cost of Goods Sold Shrinkage Expense

C. Cost of Goods Sold Merchandise Inventory

A company that uses the perpetual inventory system purchased 500 pallets of industrial soap for​ $9,000 and paid​ $780 for the​ freight-in. The company sold the whole lot to a supermarket chain for​ $12,000 on account. The company uses the​ specific-identification method of inventory costing. Which of the following entries correctly records the cost of goods​ sold? A. Cost of Goods Sold 9000 Merchandise Inventory 9000 B. Merchandise Inventory 9780 Cost of Goods Sold 9780 C. Cost of Goods Sold 9780 Merchandise Inventory 9780 D. Cost of Goods Sold 9000 Sales Revenue 9000

C. Cost of Goods Sold 9780 Merchandise Inventory 9780

The journal entry for the purchase of inventory on account using the perpetual inventory system is A. Merchandise Inventory Accounts Receivable B. Accounts Payable Merchandise Inventory C. Merchandise Inventory Accounts Payable D. Merchandise Inventory Cash

C. Merchandise Inventory Accounts Payable

Which of the following is shown on a​ multi-step income statement but not on a​ single-step income​ statement? A. net income B. cost of goods sold C. gross profit D. net sales revenue

C. gross profit

Which of the following inventory costing methods yields the lowest net income during a period of rising inventory​ costs? A. first-in, first-out B. specific identification C. last-in, first-out D. weighted-average

C. last-in, first-out

Which of the following statements concerning the worksheet is​ correct? A. A completed worksheet is a substitute for the financial statements. B. Section 5​ (Income Statement) and Section 6​ (Balance Sheet) are optional. C. When a worksheet is​ used, there is no need to make journal entries. D. A worksheet consists of seven sections.

D. A worksheet consists of seven sections.

Which account does a merchandiser use that a service company does not​ use? A. Cost of Goods Sold B. Merchandise Inventory C. Sales Revenue D. All of the above

D. All of the above

What is the order of the subtotals that appear on a​ multi-step income​ statement? A. Gross​ Profit, Operating​ Income, Net​ Income, Total Other Income and Expenses B. Operating​ Income, Gross​ Profit, Net​ Income, Total Other Income and Expenses C. Total Other Income and​ Expenses, Operating​ Income, Gross​ Profit, Net Income D. Gross​ Profit, Operating​ Income, Total Other Income and​ Expenses, Net Income

D. Gross​ Profit, Operating​ Income, Total Other Income and​ Expenses, Net Income

Which of the following statements is true of the accounting​ cycle? A. It involves preparation of adjusting entries after the closing entries. B. It ignores the beginning balances of accounts. C. It takes place only at the end of an accounting period. D. It is a process by which financial statements for a period are produced.

D. It is a process by which financial statements for a period are produced.

The Interest Expense in the​ worksheet's unadjusted trial balance column is​ $1,000. Interest Expense in the income statement column is​ $12,000. Which of the following entries would have caused this​ difference? A. a​ $11,000 credit to Interest Expense in the​ worksheet's adjustments column B. a​ $12,000 credit to Interest Expense in the​ worksheet's adjustments column C. a​ $12,000 credit to Interest Payable in the​ worksheet's adjustments column D. a​ $11,000 debit to Interest Expense in the​ worksheet's adjustments column

D. a​ $11,000 debit to Interest Expense in the​ worksheet's adjustments column

Under which of the following inventory costing methods is the ending inventory based on the costs of the most recent​ purchases? A. weighted-average B. ​last-in, first-out C. specific identification D. first-in, first-out

D. first-in, first-out

Inventory turnover measures​ ________. A. how rapidly merchandise inventory is purchased B. the​ days' sales in inventory ratio C. the time period for inventory to become obsolete D. how rapidly merchandise inventory is sold

D. how rapidly merchandise inventory is sold

what is the formula to calculate inventory turnover

Inventory turnover = Cost of goods sold​ / Average merchandise inventory

freight in

The transportation cost to ship goods into the purchaser's warehouse

freight out

The transportation cost to ship goods out of the seller's warehouse

weighted average equation

Weighted Average= Cost of Goods Available for Sale / Total Units Available for Sale

conservatism

a business should report the least favorable figures in the financial statements when two or more possible options are presented

Disclosure Principle

a businesses financial statements must report enough information for outsiders to make knowledgeable decisions about the company

Materiality Concept

a company must perform strictly proper accounting only for items that are significant to the business's financial situation

Ending inventory for the current accounting period is overstated by​ $2,700. What effect will this error have on Cost of Goods Sold and Net Income for the current accounting​ period? a. COGS- understated Net income- overstated b. COGS- overstated Net income- overstated c. COGS- understated Net income- understated d. COGS- overstated Net income- understated

a. COGS- understated Net income- overstated

Austin SoundAustin Sound sold inventory for $300,000​, terms 22​/10, ​n/30. Cost of goods sold was $152,000. How much sales revenue will Austin SoundAustin Sound report from the​ sale? ​(Assume the company records sales at the net​ amount.) a. $152,000 b. 294,000 c. $148,960 d. $300,000

b. 294,000

The financial statements are prepared from the​ ________. A. chart of accounts B. adjusted trial balance C. statement of​ owner's equity D. unadjusted trial balance

b. adjusted trial balance

FOB destination

buyer takes ownership at the delivery destination

retailer

buys merchandise from manufacturers or a wholesaler and then sells the goods to consumers

what financial statement is prepared last? a. income statement b. statement of owners equity c. balance sheet d. the financial statements can be prepared in any order

c. balance sheet

inventory turnover ratio

cost of goods sold/average inventory

An overstatement of ending merchandise inventory in the current period results in an understatement of net income in the current period. True or False?

false

Credit terms of a merchandising company are​ 1/15, net 40. This means that the buyer can receive a discount of​ 1% if the invoice is paid within 40 days of the invoice date. True or False?

false

Each inventory costing method matches the flow of inventory costs in a business and is used to determine ending inventory and cost of goods sold. True or False?

false

In a period of rising​ costs, the​ last-in, first-out​ (LIFO) method results in a lower cost of goods sold and a higher net income than the​ first-in, first-out​ (FIFO) method. True or False?

false

On the income​ statement, a service company reports the cost of merchandise inventory that has been sold to customers. true or false?

false

a net loss from the balance sheet decreases owner, capital true or false

false

the balance sheet is the first financial statement that i prepared at the end of the period. true or false?

false

the operating cycle is the time span required for a business to repay its long- term liabilities true or false?

false

Operating Income Equation

gross profit - operating expenses

Gross Profit Percentage equation

gross profit/net sales revenue