EOC 6 AND 7

Assume that sales revenue is $450,000, sales discounts are $10,000, net income is $35,000, and cost of goods sold is $320,000. Assume there are no other revenues, other expenses, or income tax expense. How much are gross profit and operating expenses, respectively?

$120,000 and $85,000 Correct! Sales revenue ($450,000) less sales returns and allowances ($10,000) less cost of goods sold ($320,000) = gross profit of $120,000. The difference between net income ($35,000) and gross profit ($120,000) = operating expenses ($85,000).

Net income is $15,000, operating expenses are $20,000, and net sales total $75,000. Assume there are no other revenues, other expenses, or income tax expense. How much is cost of goods sold?

$40,000 Correct! Sales less cost of goods sold equals gross profit. Subtracting operating expenses from gross profit equals net income. Working backwards, net income ($15,000) plus operating expenses ($20,000) results in a gross profit of $35,000. Subtracting gross profit ($35,000) from net sales ($75,000) results in cost of goods sold of $40,000.

Sales revenue totals $10,000. Sales returns and allowances are $500 and sales discounts are $1,000. How much is net sales?

$8,500 Correct! Net sales is sales revenue ($10,000) less both sales returns and allowances ($500) and sales discounts ($1,000), for a net sales total of $8,500.

A company has the following balances: Sales revenue $312,000: Sales Returns and Allowances $2,000: Sales Discounts $4,000: Cost of Goods Sold $184,000: Operating Expenses $84,000. Assume there are no other revenues, other expenses, or income tax expense. How much is the profit margin?

12.4% Net sales = $312,000 ‒ $2,000 ‒ $4,000 = $306,000Net income = $306,000 ‒ $184,000 ‒ $84,000 = $38,000 Profit margin = $38,000/$306,000 or a profit margin of 12.4%.

Net income is $15,000, operating expenses are $20,000, net sales total $75,000, and sales revenues total $95,000. How much is the profit margin?

20% Correct! Net income ($15,000) divided by net sales ($75,000) equals profit margin of 20%.

A company has the following account balances: Sales revenue $2,000,000: Sales Returns and Allowances $250,000: Sales Discounts $50,000: and Cost of Goods Sold $1,275,000. How much is the gross profit rate?

25% Net sales = $2,000,000 ‒ $250,000 ‒ $50,000 = $1,700,000Gross profit = $1,700,000 ‒ $1,275,000 = $425,000Gross profit rate = $425,000/$1,700,000 = 25%

Net income is $15,000, operating expenses are $20,000, and net sales total $75,000. Assume there are no other revenues, other expenses, or income tax expense. How much is the gross profit rate?

46.7% Correct! Net income ($15,000) plus operating expenses ($20,000) equals a gross profit of $35,000. The gross profit of $35,000 divided by net sales of $75,000 = gross profit ratio of 46.7%.

R & L Consulting uses a calendar year as its fiscal year. A customer pays R & L $1,500 on December 1, 2022, for services to be performed from December 1, 2022, through February 28, 2023. Using the accrual basis of accounting, how much revenue should R & L recognize in its December 31, 2022, financial statements?

500 $1,500 is allocated to the three months December 2022, January 2023, and February 2023. Revenue recognized on December 31, 2022, is $500.

If net sales totals $400,000, cost of goods sold is $310,000, and operating expenses are $60,000, how much is the gross profit? Assume there are no other revenues, other expenses, or income tax expense.

90,000 ($400,000 ‒ $310,000 = $90,000

Which of the following statements is correct? A periodic inventory system provides better control over inventories than does a perpetual inventory system. A perpetual inventory system provides better control over inventories than does a periodic inventory system. A periodic inventory system computes cost of goods sold each time a sale occurs. A perpetual inventory system computes cost of goods sold only at the end of the accounting period.

A perpetual inventory system provides better control over inventories than does a periodic inventory system. Under periodic inventory, details of goods on hand are not available. Since perpetual inventory requires cost of goods sold to be recognized at the time of sale, it contains more accurate values of goods on hand at any time.

Jax Company uses a perpetual inventory system and on November 30 purchased merchandise on account. The purchase will increase

Accounts Payable.

Jax Company uses a perpetual inventory system and on November 30 purchased merchandise on account. The purchase will increase

Accounts Payable. Correct! A purchase of merchandise on account will increase both Accounts Payable and Inventory.

Which of the following will be shown on the income statement for a merchandising company? Gross profit. Cost of goods sold. A sales revenue section. All of the answer choices are correct.

All of the answer choices are correct.

Which of the following statements is correct? A.)A periodic inventory system provides better control over inventories than does a perpetual inventory system. B.)A perpetual inventory system provides better control over inventories than does a periodic inventory system. C).A periodic inventory system computes cost of goods sold each time a sale occurs. D).A perpetual inventory system computes cost of goods sold only at the end of the accounting period.

B.) Under periodic inventory, details of goods on hand are not available. Since perpetual inventory requires cost of goods sold to be recognized at the time of sale, it contains more accurate values of goods on hand at any time.

Which of the following statements about a periodic inventory system is true? Companies determine cost of goods sold only at the end of the accounting period. Companies continuously maintain detailed records of the cost of each inventory purchase and sale. The periodic system provides better control over inventories than a perpetual system. The increased use of computerized systems has increased the use of the periodic system.

Companies determine cost of goods sold only at the end of the accounting period. Correct! With a periodic inventory system, companies determine cost of goods sold only at the end of the accounting period.

Starshine Industries employs a five-day workweek (Monday - Friday) and a September 30 year-end. Normal weekly wages amount to $25,000. If September 30 ends on a Wednesday, what is the appropriate entry on October 2, the next payday for Starshine?

Increase Salaries and Wages Expense $10,000; Decrease Salaries and Wages Payable $15,000; Decrease Cash $25,000

Which of the following is classified in an income statement as a non-operating activity?

Interest expense

At the end of the fiscal year, the usual adjustment for accrued salaries owed to employees was omitted. What will result from this error?

Liabilities at the end of the year will be understated.

Which one of the following will result in gross profit?

Net sales less cost of goods sold

Bridgeport Corp. reported net sales $565,000, cost of goods sold $310,750, operating expenses $180,000, and net income $66,670. Calculate the profit margin and gross profit rate.

Profit margin = Net inc. ÷ Net sales = $ 66,670 / $ 565,000 = 11.80% Gross profit rate = (Net sales − C.G.S.) ÷ Net sales = ($ 565,000 - $ 310,750) / $ 565,000 = 45%

Blue Spruce Corp. reported net sales of $250,000, cost of goods sold of $130,000, operating expenses of $59,000, net income of $32,500, beginning total assets of $465,200, and ending total assets of $578,400. Calculate profit margin and gross profit rate.

Profit margin = Net income ÷ Net sales = $32,500 / $250,000 = 13% Gross profit rate = (Net sales − C.G.S.) ÷ Net sales = ($250,000 - $130,000) / $250,000 = 48%

Which of the following is classified in an income statement as a non-operating activity?

Receiving dividend revenue from an investment Correct! Because dividend revenue is not related to the company's normal business operations, it should be classified as non-operating activity.

where is Sales returns and allowances on income statement

Sales

What does the periodicity assumption state?

The economic life of a business can be divided into artificial time periods.

Revenues such as interest that are not recorded until the end of the period because they accrue with the passage of time are a(n) _________ revenue.

accrued

When failure to make an adjustment resulted in understated expenses and understated liabilities, which of the following adjustments was not made?

accrued expenses Accrued expenses are expenses incurred but not yet paid or recorded.

Pacific Coast Fisheries incurs fuel cost every month but billed for the same in the following month. If the company pays the fuel bill in the billing month but recognizes the fuel cost as an expense in the month consumed, it will be complying with the ____________.

expense recognition principle.

Cosmo Corporation, which uses a perpetual inventory system, sells $2,000 of merchandise on July 5 on account. When Cosmo records the sale, one effect will be to

increase Accounts Receivable. Correct! A sale on account with a perpetual inventory system increases Sales Revenue, Accounts Receivable and Cost of Goods Sold.

Cosmo Corporation, which uses a perpetual inventory system, sells $2,000 of merchandise on July 5 on account. When Cosmo records the sale, one effect will be to

increase Accounts Receivable. Correct! A sale on account with a perpetual inventory system increases Sales Revenue, Accounts Receivable and Cost of Goods Sold.

An adjustment for accrued revenues will lead to a(n) ___________________.

increase in assets and an increase in revenues.

where is Depreciation expense on income statement

operating expense

where is Gain on disposal of plant assets income statement

other revenues and gains

From an accounting standpoint, the acquisition of a long-lived asset such as a building can be thought of as a long-term __________.

prepayment for the use of the asset.

Suppose that a company did not make an adjustment to record revenue for services performed but not yet billed to customers. The result of this error would be to _______________________.

understate assets, net income, and stockholders' equity.