Chapter 6 ACC Learnsmart Merchandising, operations and the multistep income statement

Match the financial statement line item with the appropriate description. Inventory Sales Revenue Cost of Goods Sold Gross Profit

Current asset on the balance sheet available for sale Selling price times the quantity sold Cost time the quantity sold a subtotal on the income statement and is the amount earned from adding value to the inventory sold

Beginning Inventory + Purchases =

Goods Available for Sale

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

Ace Electronics uses a perpetual inventory system. On May 1, beginning inventory was 10,000. On May 3, Ace purchased 3000 of inventory and sold 1500 of inventory for 5000. At the end of business on May 3, the balance in Ace's Inventory account was ____.

11,500 10000+3000-1500= 11,500

The Inventory balance on the balance sheet reports the _____.

cost of goods available for sale

Using a perpetual inventory system, the journal entry to record a sale on account will include a ______.

credit to inventory a credit to sales revenue debit to cost of goods sold debit to accounts receivable

Inventory is reported as a(n) ______ on the _______.

current asset and balance sheet only

The recording of a company's purchases returns and purchase allowances are similar in that both may result in a(n) _____.

decrease in Inventory

Merchandisers record revenue when they ____.

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

Service companies sell services rather than _____.

goods

Which of the following are reported on the income statement?

gross profit sales revenue cost of goods sold

In a perpetual system, the _____ account is debited when a company purchases merchandise on account.

inventory

A benefit of the _____ inventory system is that inventory shrinkage from theft, fraud and error is able to be estimated.

perpetual

Cost of goods sold equals beginning inventory plus ____ minus ending inventory.

purchases

Whether purchase discounts are recorded using the gross or net method, ultimately purchase discounts taken are _____.

reductions to inventory

Sales Revenue reports the ______.

sales price times the quantity of goods sold

When a company provides 1000 of services to a customer on account with payment terms of 2/10, n/30, the entry to record the sale using the gross method includes a debit to _____ and a credit to ______.

accounts receivable for 1000; sales for 1000

In which of these situations would a merchandiser record revenue?

Goods were delivered FOB Shipping Point but have not yet arrived at the buyer's place of business and The obligation has been fulfilled and control of the goods has been transferred to the customer.

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: Cost of Goods Sold includes all of the products together

Goods Available for Sale will ______ when sold.

become Cost of Goods Sold on the income statement

Which of these will require a credit to the inventory account in a perpetual inventory system?

selling inventory for cash and selling inventory on account

The purchaser of inventory pays for shipping if the shipping terms are FOB ____.

shipping point

The journal entry to record the payment within the discount period for goods previously purchased on account causes ____.

total assets to decrease and total liabilities to decrease

Bijoux Company uses a perpetual inventory system. Its bookkeeper properly recorded a 5000 sale on account, but forgot to record the related cost of the sale of 3000. As a result of this error, ______.

total assets will be too high and net income will be too high

Ace Electronics had Cost of Goods Sold of 20,000. If purchases of inventory during were 23,000 and Ending Inventory was 6000, Ace's Beginning Inventory must have been ____.

3000

Ace Electronics uses a perpetual inventory system. On May 1, beginning inventory was 100,000. During May, Ace purchased 35,000 of inventory and sold 71,000 of inventory. After the store closed on May 31, employees counted the inventory in the store and found that 60,000 of inventory remained unsold. What was Ace's inventory shrinkage?

4,000

Ace Electronics uses a perpetual inventory system. On May 1, beginning inventory was 100,000. During May, Ace purchased 35,000 of inventory and sold 71,000 of inventory. After the store closed on May 31, employees counted the inventory in the store and found that 60,000 of inventory remained unsold. What was Aces's inventory shrinkage?

4,000 According the perpetual records, ending inventory is 64000 (=100000 +35000 - 71000). Compare the inventory balance per the accounting records with the 60000 that actually remains in the store to get the inventory shrinkage of 4000 (=64000 per accounting records minus 60000 per the physical count).

Acme, Inc. had cost of goods sold of $2000. If beginning inventory was $2100 and ending inventory was $500, Acme;s purchases must have been $______.

400

XYZ Company sold merchandise for 5000, with payment terms of 2/10, n/30. If the customer pays within the discount period and takes the discount, XYZ will receive ____.

4900 the customer can take a 2% discount and pay 4900 (=5000 - (2% x 5000))

Bijoux Company has Net Sales of $40,000; Beginning Inventory of $5000; Purchases of $25,000 and Ending Inventory of $7000. Cost of Goods Sold equals ____.

23,000 Beginning Inventory of 5000 +Purchases of 25000 - 7000 of Ending INventory

A purchaser is offered a 2% discount if the bill is paid within 7 days, otherwise the full amount is due in 30. This purchase discount is expressed on the invoice as follows:

2/7, n/30

X company, which uses a perpetual inventory system, sold 2000 of merchandise on account with credit terms of 2/10, n/30. The journal entry to record the initial sale gross of any discounts will include ______.

a debit to accounts receivable of 2000 and a credit to sales revenue of 2000

X company, which uses the gross method and a perpetual inventory system, sold 2000 of merchandise on account with the credit terms of 2/10, n/30. If the customer pays within the discount period and takes the discount, X will record a journal entry that includes _____.

a debit to accounts receivable of 2000 and a credit to sales revenue of 40 and a debit to cash of 1960

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

Sales returns and allowances ______.

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

The adjustment to record inventory shrinkage will increase ____.

cost of goods sold on the income statement

Cost of Goods Sold on the income statement reports the _____.

cost times the quantity of goods sold during the period

Sales discounts should appear in the financial statements as a(n) ______.

deduction from sales

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.

deferred revenue and inventory

FOB ___ is the term used when ownership of the goods transfers to a buyer when the goods arrive at the buyers place of business.

destination

An adjusting entry that debits sales revenue and a credit to refund liability as well as debits inventory-estimated for returns and credits cost of good sold is recording the ______.

estimated returns

The purchasers entry to record the payment for transportation costs on the purchase of merchandise sold FOB shipping point is debited to _____.

inventory

If Accounts Payable is debited and Cash is credited, then the company is recording a ______.

payment of amounts owed for purchases made on account

Inventory consists of the purchase price ____.

plus freight - in freight in i s the shipping costs that are added to inventory as part of the cost needed to get the asset into a condition ready for sale.

The inventory account may be credited for ____.

purchase returns and allowances

Sales revenue reports the ____.

sales price times the quantity of goods sold

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

sales revenue sales returns, Allowances and discounts net sales cost of goods sold gross profit

How should the seller of a bundle sale for 8,000 be recorded when the sale involves the delivery of a copier machine and a one year service agreement? The seller must _____ and recognize the revenue _____.

split the 8,000 between the product and service contract; for the product when delivered and the service when performed

To determine cost of goods sold for the period requires ____.

subtracting ending inventory from the goods available to sell, which is the beginning inventory plus purchases

A major drawback to the periodic inventory system is ______.

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