BA 211 Chapter 6

On May 3, Botit Inc. purchased merchandise on account for $1,000, FOB shipping point, with terms 1/10, n/30 from Cellar, Inc. On May 6, Botit received the merchandise, along with an invoice for $1,000. In addition, $100 in shipping costs was owed to We Deliver, Inc. On May 12, Botit paid all amounts owed, which amounted to ________.

$1,090

On October 25, Yacht Doc received $210,000 for a yacht valued at $190,000 and a service contract to be performed evenly from November through February. During November, the yacht was delivered and 1 month of the service contract was performed. The remaining services are to be performed evenly over the next 3 months. In what month should the service contract be recognized as revenue?

$5,000 in each month from November to February

Place the income statement line items in the proper order from the top to bottom.

1. Sales Revenue, gross 2. Sales Returns, Allowances and Discounts 3. Sales Revenue, net 4. Cost of Goods Sold 5. Gross Profit

Breyer Company bought inventory FOB shipping point from Cellar Company for $4,000 cash, including shipping charges. On December 31, the last day of the accounting year, the goods were on a truck owned by Common Carrier Company, and not expected to arrive until January 3. Which company should include these goods in its December 31 inventory?

Breyer Company should include the $4,000 in its inventory.

Every merchandise sale has 2 components which require an entry in a perpetual inventory system. Select these two components given the sale was made on account to a customer.

Debit Cost of Goods Sold and credit Inventory in the amount of the cost times the quantity sold, and Debit Accounts Receivable and credit Sales Revenue in the amount of the selling price times the quantity sold.

True or false: In a perpetual inventory system, the entry to record the cost of a sale is a debit to Cost of Goods Sold and a credit to Inventory (beginning) and a credit to Purchases.

False This is the entry for a periodic, not perpetual, inventory system. The correct entry is debit to Cost of Goods Sold and credit to Inventory.

Using a perpetual inventory system, the effect on the accounting equation of purchasing merchandise on account includes a(n) ______.

Increase in assets and Increase in liabilities

The purchaser's entry to record the payment for transportation costs on the purchase of merchandise sold FOB shipping point is debited to ______.

Inventory

Beginning inventory was $100. Purchases during the year were $3,000. Based on a physical count at year-end, inventory should equal $300. In a periodic system, the year-end adjusting entry to transfer beginning and ending inventory balances to cost of goods sold includes credits to ______.

Inventory of $100 and purchases of $3,000

A merchandise _______ income statement shows how much profit is earned from product sales without being clouded by other operating expenses and separates other items that are not core to the operations of the company.

multistep

Put the 5-step revenue model for a bundle sale in its proper order by placing the 1st step at the top.

1. Identify the contract 2. Identify the seller's performance obligation 3. Determine the transaction price 4. Allocate the transaction price to each performance obligation in the bundle sale 5. Recognize revenue when (or as) each performance obligation is satisfied

Bottom, Inc. paid an invoice for $1,000, with discount terms of 1/7, n/30, within the discount period. The net amount paid was ______.

$990

To ensure the accuracy of inventory accounted for using a perpetual system, physical counts ______.

Detect bookkeeping errors, Detect shrinkage, and Detect theft

Bijoux Company has sales of $40,000, beginning inventory of $5,000, purchases of $25,000, and ending inventory of $7,000. The goods available for sale for the period equals ______.

Goods available for sale equals $30,000 (= beginning inventory of $5,000 plus purchases of $25,000).

Which line items are found on a multi-step but not on a single-step income statement.

Gross Profit and Income from Operations

Any costs incurred to get the merchandise into a condition and location ready for sale should be debited to ______.

Inventory

Any costs incurred to get the merchandise into a condition and location ready for sale should be debited to ______. Multiple choice question.

Inventory

When a seller fulfills its performance obligation, it credits ______.

Revenue

Inventory consists of all ______.

costs needed to get the inventory ready for sale

The journal entry to record taking a discount when paying for goods previously purchased on account and recorded using the gross method includes a ______.

credit to two asset accounts and debit to a liability account

Inventory is reported as a(n) ______.

current asset on the balance sheet

In a perpetual system, the entry to record the sale of merchandise to a customer on account would include a ______.

debit to Cost of Goods Sold and credit to Inventory

The seller of inventory pays for shipping if the shipping terms are FOB ______.

destination

Sales Returns and Allowances are reported on the ______.

income statement

Net Sales on an income statement equals Sales Revenue ______.

minus Sales Returns, Allowances and Discounts

Under the _______ inventory system, inventory records are updated only at the end of the accounting period.

periodic

If sales returns and allowances are a large dollar amount relative to initial sales revenue, it may mean ______.

there are product quality issues

In a perpetual system, the entry to record the sale of merchandise to a customer on account would include a ______.

Debit to Cost of Goods Sold, debit to Accounts Receivable, credit to Inventory, and credit Sales Revenue

A sales allowance that results in issuing store credit rather than a cash refund is recorded with a debit to ______.

Sales Revenue and a credit to Deferred Revenue

On May 3, Botit Inc. purchased merchandise on account for $1,000, FOB shipping point, with terms 1/10, n/30 from Cellar, Inc. On May 6, Botit received the merchandise, along with an invoice for $1,000. In addition, $100 in shipping costs was owed to We Deliver, Inc. On May 12, Botit paid all amounts owed, which amounted to _______.

$1,090

Using a perpetual inventory system, when a company records a sale of merchandise, it must also record ______.

A decrease in its inventory and Cost of Goods Sold, which will be reported on the income statement

XYZ's journal entry to record the return of merchandise previously purchased on account by XYZ was recorded by debiting Inventory and crediting Accounts Payable. As a result of this entry, ______.

Assets will be overstated and Liabilities will be overstated

Ace Electronics had Cost of Goods Sold of $20,000. If purchases of inventory were $23,000 and Ending Inventory was $6,000, Ace's Beginning Inventory must have been ______.

Beginning Inventory + $23,000 Purchases - $20,000 Cost of Goods Sold = $6,000 Ending Inventory. Beginning Inventory = $6,000 Ending Inventory - $23,000 Purchases + $20,000 Cost of Goods Sold = $3,000.

The journal entry to record the payment for merchandise previously purchased on account includes a ______.

Debit to Accounts Payable and Credit to Cash

The journal entry to record the payment of cash to FedEx for shipping costs for inventory purchased FOB shipping point includes a ______.

Debit to Inventory and Credit to Cash

_______ Sales on an income statement equals Sales Revenue, gross minus Sales Returns and Allowances minus Sales _______.

Net and Discounts

On October 25, Yacht Doc received $200,000 for a yacht valued at $180,000 and a 4-month service contract. During November, the yacht was delivered and 1 month of the service contract was performed. The remaining services are to be performed evenly over the next 3 months. In what month should the $180,000 for the yacht be recognized as revenue?

November

Which of the following items are netted against Sales Revenue to arrive at Net Sales (Sales Revenue, net)?

Sales Allowances, Sales Returns, and Sales Discounts

What are the two stages of accounting for a purchase discount using the gross method?

The Inventory account is later reduced if payment is made within the discount period, and The purchase is first recorded at full cost.

Berkley Company had beginning inventory of $4,000 and purchases of $20,000. If half of its inventory is sold, Berkley's total goods available for sale for the period will ______.

be split between cost of goods sold and ending inventory Of all the goods available to sell (=beginning inventory + purchases), only the goods that have not been sold will be reported as Inventory, an asset on the balance sheet. The amount that has been sold is reported as Cost of Goods Sold, an expense on the income statement.

When using the gross method, the journal entry to record taking a discount when paying for goods previously purchased on account includes a ______.

credit to Cash for the amount paid, credit to Inventory for the discount amount, and debit to Accounts Payable for the original cost

In a periodic system, the entry to transfer beginning inventory and purchases into cost of goods sold includes a ______.

credit to Inventory (beginning balance), credit to Purchases, and debit to Cost of Goods Sold

In a perpetual inventory system, the journal entry to record the payment of cash for the shipping costs of purchased merchandise will cause ______.

one asset to increase and another asset to decrease

A _______ inventory system records the Cost of Goods Sold with a debit to Cost of Goods Sold and a credit to Inventory (beginning) and credit to Purchases

periodic

The _______ inventory system records all inventory-related transactions in the inventory account (e.g. transportation, purchase returns and allowances, purchase discounts) and reduces inventory at the time of sale. The _______ inventory system uses separate accounts for these items and records cost of goods sold at the end of the accounting period.

perpetual and periodic

Inventory consists of the purchase price ______. Multiple choice question.

plus freight-in Freight-in is the shipping costs that are added to Inventory as part of the cost needed to get the asset into a condition ready for sale. Freight-out is a selling expense. Freight-in is the shipping costs that are added to Inventory as part of the cost needed to get the asset into a condition ready for sale.

A multistep income statement is useful to financial statement users because it ______.

separates income statement items into meaningful components and separates cost of goods sold from other operating expenses, which allows the calculation of gross profit