Accounting - Chapter 6

On October 25, Yacht Doc received $210,000 for a yacht valued at $190,000 and a service contract to be performed evenly from November through February. 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 service contract be recognized as revenue?

$5,000 in each month from November to February.

___ companies sell goods that they have produced.

Manufacturing

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

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

discount% / discount period of time, retail price / full period of time to pay 2/7,n/30

Sales returns and allowances ___.

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

Gross Profit equals ___.

Net Sales minus Cost of Goods Sold

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

Periodic

Using a perpetual inventory system, when a company records a sale of merchandise, it must also record___.

a decrease in its inventory Costs of Goods Sold, which will be reported on the income statement

Purchases of merchandise for resale that are still on hand are reported on the ___.

balance sheet and not the income statement of merchandisers

In a perpetual system, the entry to record the sale of merchandise to a customer on account would include a ___.

credit to inventory credit Sales Revenue debit to Costs of Goods Sold debit to Accounts Receivable

Sales Returns and Allowances are reported on the ___.

income statement

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

inventory

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.

multistep

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

perpetual