ACCN Chapter 5 Adaptive Practice

Conway Company purchased merchandise inventory with an invoice price of $9,000 and credit terms of 2/10, n/30. What is the net cost of the goods if Conway Company pays within the discount period?

If Conway Company pays within the discount period of ten days, the company is able to receive a 2% discount off of the invoice amount of $9,000. This is calculated as $9,000 x .98 = $8,820. If Conway does not pay within the ten-day discount period, the company will pay the full invoice amount of $9,000 within 30 days.

Leo's Grocery bought cakes and bread for resale worth $10,000. Assuming the net cost of goods is paid within the discount period, which of the following statements will be correct?

If the credit terms are 2/10, the discount is 2%: $10,000 x (1.00 - 0.02) = $9,800. If the credit terms are 3/10, the discount is 3%: $10,000 x (1.00 - 0.03) = $9,700.

Gadget Corp. recently reported sales revenue of $775,000, gross profit of $350,000, and net income of $64,000 for its most recent fiscal year. What were the firm's operating expenses for the year?

Operating expenses are the difference between gross profit and net income. $350,000 - 64,000 = $286,000.

The collection of a $3,000 account after the 2% discount period will result in a debit to

Collection on account refers to an increase (debit) of cash. In this case, the cash is received after the expiration of the discount period, and therefore payment is for the full amount of the invoice or $3,000.

Gross profit is

Gross Profit is a measure of merchandising profit, comprised of sales revenue less cost of goods sold. However, it is not a measure of the overall profit of the company as other components such as operating expenses and other revenues and expenses impact net income.

If net sales are $600,000 and gross profit is $412,800, what is the gross profit rate?

The gross profit rate is calculated using the following formula: Gross Profit Rate = Gross Profit / Net Sales. Using this formula, the Gross Profit Rate is 68.8% ($412,800 / $600,000). $412,800 ÷ $600,000 = 68.8%

Although the perpetual inventory system updates accounting records after each sale, a physical count is necessary at year-end to address issues such as ________ and

A perpetual inventory system records sales of inventory through normal methods. However, often other causes affect inventory level, including handling losses, theft or "shrinkage," and spoilage.

Badger Enterprises purchased aluminum from JG Metals. When Badger Enterprises recorded this transaction, they made entries into three accounts: Purchases, Freight-In, and Purchase Discounts. Based on this, what type of inventory system does Badger Enterprises use?

In a periodic system, purchases, freight costs, and purchase discounts are all recorded in separate accounts. They are not directly entered into the Inventory account, as they are in a perpetual system. Because Badger Enterprises records the purchase in the Purchases, Freight-In, and Purchase Discounts accounts, they most likely use a periodic system of inventory.

Lucky Inc. reported sales revenue of $385,000, operating expenses of $65,000, and a net loss of $23,000 for the most recent fiscal year. What amount did Lucky report for cost of goods sold?

In this scenario, you would first solve for gross profit. The calculation for gross profit is: Operating Expenses - Net Loss = Gross Profit or $65,000 - $23,000 = $42,000. Once you've calculated the gross profit, you can solve for the cost of goods sold. The calculation for cost of goods sold is: Sales Revenue - Gross Profit = Cost of Goods Sold or $385,000 - $42,000 = $343,000. Lucky Inc. reported a cost of goods sold of $343,000.

During the year, a discount retailer's merchandise inventory decreased by $560,000. If the company's cost of goods sold for the year was $1,500,000, purchases would have been

To find the purchases for the year, deduct from cost of goods sold, the amount that inventory had decreased to arrive at the Cost of Goods Purchased.$1,500,000 - $560,000 = $940,000

Gen-Tech sells merchandise on account for $4,000 to Acorn Company with credit terms of 2/10, n/30. Within the discount period, Acorn Company returns $500 of damaged merchandise and a check for ________ to settle the account.

Acorn company should first deduct the cost of the returned merchandise. $4,000 - $500 = $3,500. Next, Acorn should apply the 2% discount to reflect payment within the 10 day discount period (terms are 2/10). $3,500 x (1.00 - 0.02) = $3,430.

Which of the following retailers is most likely to utilize a sophisticated, computerized perpetual inventory system?

Due to the costs of a sophisticated computerized perpetual inventory system, a nationwide hardware retail store is more likely to employ it. Smaller scale businesses would find it unnecessary or uneconomical to invest in this type of system.

Edward's Paints purchased $1,000 merchandise on account from a wholesaler. The wholesaler offered credit terms of 2/10, n/30. After the discount period, Edward's Paint returned $200 of damaged merchandise, and settled the account with a check. How much was the check for?

Edward settled the account after the discount period. He will only pay total merchandise less the return of damaged merchandise.($1,000 - $200) = $800

In April, Green Products received $62,000 in cash for its products and had returns totaling $2,000. Its gross profit rate was 45 percent. For the month of April, it will report net sales revenue and cost of goods sold of

First, solve for net sales. Net Sales Revenue = Sales - Sales Returns and Allowances - Sales Discounts; Using this formula, Green Products' net sales revenue for April is $60,000 ($62,000 - $2,000 - $0). Next, calculate gross profit so that you can solve for the cost of goods sold. Gross Profit Rate = Gross Profit / Net Sales. Restating the formula to solve for gross profit: Gross Profit = Gross Profit Rate x Net Sales. Using this formula, Green Products' gross profit for April is $27,000 ($60,000 x .45). Finally, use the calculated amounts of net sales and gross profit to solve for the cost of goods sold. Gross Profit = Net Sales - Cost of Goods Sold. Restating the formula, Cost of Goods Sold = Net Sales - Gross Profit. Using this formula, Green Products' cost of goods sold is $33,000 ($60,000 - $27,000).

On December 31, 2022, Kiel Industries ending inventory was $19,200. On December 31, 2023, Kiel's ending inventory was $20,000. Assuming beginning inventory and cost of goods purchased were the same in both 2022 and 2023, how will Kiel's cost of goods sold in 2023 differ from its cost of goods sold in 2022?

Goods Available for Sale less Ending Inventory is equal to Cost of Goods Sold. Since 2023 has a higher ending inventory it means that it has a lower cost of goods sold.

Last month a company had net sales revenues of $10,000; Cost of goods sold of $4,000; other operating expenses of $3,000; non-operating expenses of $1,000; no non-operating revenues, gains or losses; and income taxes of $500. The gross profit was

Gross profit is calculated as Net Sales - Cost of Goods Sold. Therefore, the gross profit is $10,000 - $4,000 = $6,000

______ is shown on a multiple-step but not on a single-step income statement.

Gross profit is shown on a multi-step income statement. On the multi-step income statement, the important line items include gross profit, income from operations, and net income. A single-step income statement lists all revenues, then subtracts all expenses to arrive at net income.

If net sales are $2,100,000 and gross profit is $670,000, what is the gross profit rate?

Gross profit rate is calculated as gross profit divided by net sales.$670,000 ÷ $2,100,000 = 31.9%

When can sales revenues be recorded?

It is often proper to record sales revenue before the collection of cash. Selling on account is a common practice that allows the buyer a defined timeframe in which to pay for the merchandise.

A company reports Sales Returns and Allowances of $86,000 and Net Sales of $700,000. It also reports Cost of Goods Sold of $370,000. Find the company's Sales and Gross Profit.

Sales - Sales Returns and Allowances = Net Sales; Restated to solve for Sales: Net Sales + Sales Returns and Allowances = Sales. Therefore sales equals $786,000 ($700,000 + $86,000).Net Sales - Cost of Goods Sold = Gross Profit. Therefore gross profit is $330,000 ($700,000 - $370,000).

James Corp. uses the periodic inventory system. Its beginning inventory was $17,000, purchases of inventory for the year were $55,000, and the cost of goods sold for the year was $33,000. What was the firm's year-end inventory?

The cost of goods sold is calculated as follows: Cost of Goods Sold = Beginning Inventory + Cost of Goods Purchased - Ending Inventory; Restating to solve for ending inventory: Ending Inventory = Beginning Inventory + Cost of Goods Purchased - Cost of Goods Sold; Using the restated formula, James Corp.'s ending inventory equals $39,000 ($17,000 + $55,000 - $33,000).

How is the gross profit rate computed?

The gross profit rate is calculated as gross profit divided by net sales. This expresses gross profit as a percentage. The gross profit rate is helpful to analysts as it represents a more meaningful relationship between gross profit and gross sales

A company makes an entry to record a sale. Then it debits Cost of Goods sold and credits Inventory. What inventory system is the company using?

When a company continually updates inventory after each sale is made, the company uses a perpetual inventory system. Companies using this method perpetually know the inventory on hand for each item.

A hotel purchases goods for $5,000 on credit. If the supplier offers terms of 2/10, n/30, what is the amount the hotel will pay if it pays within the discount period?

With a term of 2/10, n/30, if the customer takes advantage of a 2% discount then the total amount paid would be calculated as:$5,000 x 0.98 = $4,900