Ch 6 ACC 200

The Inventory account may be credited for ______.

purchase returns and allowances

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 inventory system updates the inventory account only at the end of the accounting period?

Periodic

Which inventory system records a change in the Inventory account every time goods are bought, sold or returned?

Perpetual

If a seller sells its merchandise with the shipping terms FOB destination, it credits Revenue when the merchandise is _______.

received by the customer

The journal entry to record the payment for merchandise previously purchased on account will cause stockholders' equity to ______.

remain unchanged

Beginning inventory was $5,000. During the month, the company purchased an additional $25,000 of inventory and sold goods that cost $20,000. Ending inventory was ______.

$10,000

Inventory began was $30,000. During the period the company purchased $61,000 of merchandise. At the end of the period, inventory was $22,000. If the gross profit percentage was 40%, what was sales revenue?

$115,000

Bijoux Company has Net Sales of $40,000; Beginning Inventory of $5,000; Purchases of $25,000 and Ending Inventory of $7,000. Cost of Goods Sold equals ______.

$23,000

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 ______.

$30,000

Boron Company has Net Sales of $60,000; Beginning Inventory of $7,000; Purchases of $35,000 and Ending Inventory of $5,000. The Cost of Goods Sold is ______.

$37,000

XYZ Company sold merchandise for $5,000, with payment terms of 2/10,n/30. If the customer pays within the discount period and takes the discount, XYZ will receive ______.

$4,900

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 Sales. 4. Cost of Goods Sold. 5. Gross Profit.

Gotit Inc. paid an invoice for $1,000 of merchandise plus shipping of $100. If the terms were 2/10, n/30, and the bill was paid within one week of receipt, how much cash was paid?

1080 1000 * .02 = 20 1000 - 20 = 980 980 + 100 = 1080

Match the description for each part of the purchase discount 2/10,n/30. Instructions

2 --> discount percentage 10 --> the discount period 30 --> when the full amount is due

Using a perpetual inventory system, what is recorded when a customer returns a product that was purchased on account, and the product is put back on the store shelf to be resold?

A debit to Sales Returns & Allowances and a credit to Accounts Receivable; and a debit to Inventory and a credit to Cost of Goods Sold

Using a perpetual inventory system, what is recorded when a customer returns a product and gets the cash back and the product is put back on the store shelf to be resold?

A debit to Sales Returns & Allowances and a credit to Cash; and a debit to Inventory and a credit to Cost of Goods Sold

Alpha Company bought inventory from Omega Company, FOB shipping point. On December 31, the last day of the accounting year, the goods were on a truck owned by Theta, Inc., exactly half-way between Alpha and Omega. Which company should include these goods in its December 31 inventory?

Alpha

The entry to record a sales return that results in the issuing of a gift card is recorded with a debit to Sales Revenue and a credit to _______ and also a debit to ______ and a credit to Cost of Goods Sold. (Enter only one word per blank.)

Blank 1: Deferred or Unearned Blank 2: Revenue Blank 3: Inventory

In a perpetual system, the _______ account is debited when a company purchases merchandise on account. (Enter one word per blank.)

Blank 1: Inventory

_______ is classified as a(n) ________ asset and reports the amount of merchandise available to sell. (Enter one word per blank.)

Blank 1: Inventory Blank 2: current

_________ Sales on an income statement equals Sales Revenue (gross) minus Sales Returns and Allowances minus Sales _____. (Enter one word per blank.)

Blank 1: Net Blank 2: Discounts or discount

A _____ 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. (Enter only one word per blank.)

Blank 1: multistep or multi-step

A benefit of the _______ inventory system is that inventory shrinkage from theft, fraud and error is able to be estimated. (Enter one word per blank.)

Blank 1: perpetual

Cost of goods sold equals beginning inventory plus _______ minus ending inventory. (Enter one word per blank.)

Blank 1: purchases

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.

ABC Corp. sells a product for $1,000 cash that cost $600. The journal entry(ies) for this transaction using a perpetual inventory system include a debit to ______.

Cash of $1,000 and a credit to Sales Revenue of $1,000; a debit to Cost of Goods Sold of $600 and a credit to Inventory of $600

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 Debit Accounts Receivable and credit Sales Revenue in the amount of the selling price times the quantity sold

A sales return that results in issuing store credit rather than a cash refund is recorded with a credit to a liability called ______.

Deferred Revenue

The entry to record the revenue recognized from the service portion of a bundle sale that was collected in advance is recorded with a debit to ______ and a credit to ______.

Deferred Revenue; Service Revenue

True or false: Gross Profit is a stockholders' equity account and is credited when goods are delivered to customers.

False

Which of the following costs should be added to the buyer's Inventory account?

Freight-in with terms FOB shipping point

Which line items are found on a multi-step but not on a single-step income statement. (Check all that apply.)

Income from Operations Gross Profit

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

Inventory

Match the financial statement line item with the appropriate description. Instructions

Inventory --> Current asset on the balance sheet available for sale Sales Revenue --> Selling price times the quantity sold Cost of Goods Sold --> Cost times the quantity sold Gross Profit --> A subtotal on the income statement and is the amount earned from adding value to the inventory sold

Why is inventory reported as a current asset?

Inventory is reported as a current asset because it will be converted into cash within a year of the balance sheet date.

In a perpetual inventory system, the return of merchandise XYZ recently purchased on account will have the following effects on XYZ's accounting equation. (Check all that apply.)

Liabilities will decrease. Assets will decrease.

Gross profit percentage is calculated as ______.

Net sales minus Cost of Goods Sold, then divide by Net sales, and multiply by 100

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

Revenue

Which of the following items are netted against Sales Revenue to arrive at Net Sales (Sales Revenue to net sales)? (Select all that apply.)

Sales Returns Sales Discounts Sales Allowances

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

Match the type of company with the appropriate description.

Service Company --> Will typically not have Inventory on its balance sheet or Cost of Goods Sold on its income statement Retailers --> Buys goods and sells them directly to individuals Wholesaler --> Buys goods and sells them to other companies that will then sell them to individuals Manufacturing Company -->Makes the finished goods

Match each type of company with the type of goods or services it sells.

Service companies --> Sell services rather than physical goods Merchandising companies --> Sell goods that have been obtained from a supplier Manufacturing companies --> Sell goods that they have made themselves

Ace Electronics, which uses a perpetual inventory system, recorded a debit to Sales Returns & Allowances and a credit to Accounts Receivable, along with a debit to Inventory and a credit to Cost of Goods Sold. What business event must have taken place?

The customer received a damaged product and returned it.

What are the two stages of accounting for a purchase discount using the gross method? (Check all that apply.)

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

In a perpetual inventory system, which of the following statements are true? (Check all that apply.)

The purchaser should record freight-in as an asset, Inventory. The seller should record freight-out as a selling expense.

True or false: When a company sells different types of products, the income statement will report the Cost of Goods Sold for all of the products in one line item.

True

Which of the following statements are true about a perpetual inventory system? (Check all that apply.)

Until inventory is sold, it is an asset reported at its cost on the balance sheet. After inventory is sold, its cost is removed from the balance sheet and reported on the income statement as an expense.

What does the sales discount 2/10, n/30 mean?

You can take a 2% discount if you pay within 10 days, or the full amount is due within 30 days.

Using a perpetual inventory system, the journal entry to record a sale on account will include a ______. (Check all that apply.)

a credit to Sales Revenue debit to Cost of Goods Sold debit to Accounts Receivable credit to Inventory

Sales returns and allowances ______. (Select all that apply.)

are adjusted for at the end of the accounting period for estimated returns and allowance expected to occur in the following months are typically recorded after the initial sale when the actual return or allowance occurs reduce the amount the seller expects to receive from customers

Goods Available for Sale will ______ when sold.

become Cost of Goods Sold on the income statement

Sales Returns & Allowances is a ______ account and is ______ when goods are returned by customers for a refund.

contra-revenue; debited

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

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

Inventory consists of the purchase price ______.

plus freight-in

The journal entry to record the payment for merchandise previously purchased on account includes a ______. (Select all that apply.)

debit to Accounts Payable credit to Cash

In a perpetual system, the entry to record a purchase of merchandise on account includes a ______. (Check all that apply.)

debit to Inventory credit to Accounts Payable

The journal entry to record the payment of cash to FedEx for shipping costs for inventory purchased FOB shipping point includes a ______. (Select all that apply.)

debit to Inventory credit to Cash

The gross profit percentage is the ratio to watch if you are worried about increased competition. If the company lowers its prices to retain market share without lowering its cost of goods sold, its gross profit percentage will ______.

decrease

Using the gross method, the journal entry to record taking a discount when paying for goods previously purchased on account includes a(n) ______.

decrease in assets and liabilities

To ensure the accuracy of inventory accounted for using a perpetual system, physical counts ______. (Check all that apply.)

detect theft detect shrinkage detect bookkeeping errors

Which of the following should be debited to Inventory? (Select all that apply.)

freight-in if shipped FOB shipping point purchases of merchandise on account

Merchandisers record revenue when they ______.

fulfill their performance obligations by transferring control of the goods to customers

The operating cycle involves ______.

generating revenues and collecting from customers

What does FOB shipping point mean?

goods are owned by the buyer when they leave the seller's place of business

Sales Returns and Allowances are reported on the ______.

income statement

The gross profit percentage measures the percentage of profit earned on each dollar of sales before deducting all expenses other than cost of goods sold. This ratio is used to: (Check all that apply.)

make comparisons over time. compare one company with another.

Net Sales on an income statement equals Sales Revenue ______.

minus Sales Returns, Allowances and Discounts

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

The ________ cycle is a series of activities that the company undertakes to generate sales and ultimately cash. (Enter only one word per blank.)

operating

Sales Revenue reports the ______.

sales price times the quantity of goods sold

If a seller sells its merchandise with the shipping terms FOB shipping point, it credits Revenue when the merchandise is _______.

shipped from the seller's place of business

FOB ______ is the term used when ownership of the goods transfers to a buyer as soon as the goods leave the seller's place of business.

shipping point

A major drawback to the periodic inventory system is ______.

the amount of inventory on hand and sold is unavailable during the accounting period

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

there are product quality issues

The journal entry to record the payment within the discount period for goods previously purchased on account causes _____. (Check all that apply.)

total assets to decrease total liabilities to decrease