homework 6.1

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When does the cost of inventory become an​ expense?

When inventory is delivered to a customer

A purchase discount decreases the cost of the inventory

true

How is cost of goods sold classified in the financial​ statements?

as an expense

Service entities report cost of goods sold on the income statement.

false

To document approval of purchase​ returns, the buyer issues a credit memorandum meaning that accounts payable are reduced for the amount of the return.

false

Ravenna Candles recently purchased candleholders for resale in its shops. Which of the following costs would be part of the cost of the candleholder​inventory?

freight in

Which inventory system maintains a running record of inventory on​ hand, purchased, and​ sold?

perpetual

Trift Company made total purchases of $295,000 in the most current year. It paid freight in of $1,000 on its purchases. Freight​out, the cost to deliver the merchandise when it was sold to Trift​'s ​customers, totaled $9,800. Of the total purchases Trift made during the​period, it returned $24,000 of the merchandise. Trift took advantage of $2,300 of purchase discounts offered by its vendors. What was Trift​'s cost of​inventory?

$269,700

Cost of Goods Sold is an operating expense on the income statement.

false

Freight in is accounted for as a delivery expense.

false

Inventory is reported on the balance sheet at the selling price of the inventory still on hand.

false

Since a perpetual inventory system continuously updates the inventory​ account, a physical inventory count is not necessary to prove the inventory records.

false

In a perpetual inventory​ system, a business maintains a running record of the number of units​ bought, sold and on hand for each inventory item.

true

The cost of inventory shifts from asset to expense when the seller fulfills its contract with the​ customer, delivers the goods to the buyer and recognizes revenue.

true

The seller does not include consigned merchandise on hand in its balance​ sheet, because the seller does not own this inventory

true

Dayton Company sold 13,000 jars of its organic honey in the most current year for $10 per jar. The company had paid $6.50 per jar of honey.​ (Assume that sales returns are​ nonexistent.) Calculate the​ following: 1. Sales revenue 2.Cost of goods sold 3. Gross profit

1. $130,000 2. $84,500 3. $45,500


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