Acct 100 // Ch. 5

The following amounts relate to Amato Company for the current year: beginning Inventory, $20,000; ending inventory, $28,000; purchases, $166,000; purchase returns, $4,800; and freight-out, $6,000. The amount of cost of goods sold for the period is

$153,200. ///Cost of goods sold = beginning inventory ($20,000) + purchases ($166,000) - purchase returns and allowances ($4,800) + freight-in ($0) - ending inventory ($28,000).

Villa Sales Company had the following amounts related to its business: Beginning inventory, $12,000; Purchases, $42,000; Net sales, $50,000; and Gross profit, $15,000. The amount of the ending inventory is

$19,000 ///Cost of goods sold = net sales ($50,000) - gross profit ($15,000) = $35,000. Ending inventory = beginning inventory ($12,000) + cost of goods purchased ($42,000) - cost of goods sold ($35,000) = $19,000.

If beginning inventory is $60,000, cost of goods purchased is $380,000, and ending inventory is $50,000, cost of goods sold is

$390,000.

If beginning inventory is $60,000, cost of goods purchased is $380,000, and ending inventory is $50,000, cost of goods sold is

$390,000. ///Beginning inventory $60,000 + cost of goods purchased $380,000 - ending inventory $50,000 = $390,000 cost of goods sold.

A credit sale of $750 is made on June 13, terms 2/10, net/30. A return of $50 is granted on June 16. The amount received as payment in full on June 23 is

$686. ///This amount is accurate because the full amount is paid within 10 days of the purchase {($750 - $50) - [($750 - $50) X 2%]}.

What should we do with the freight payment for the buyer?

Add to the inventory cost because it is an unavoidable cost of the merchandise /// Dr. Merchandise Inventory 25 Cr. Cash 25

Operating Cycles

Buy Inventory Sell to customers Generate Sales (Revenue)

Which of the following accounts will normally appear in the ledger of a merchandising company that uses a perpetual inventory system?

Cost of Goods Sold

Sold Inventory

Cost of Goods Sold (Cost of Sales) = cost of merchandise

Which of the following is not part of the journal entries made when merchandise is sold on credit?

Credit the Cost of Goods Sold account.

Recording Merch. Sales assuming the item selling price is $100; cost is $25 Credit transaction

Dr. Accounts Receivable 100 Cr. Sales 100 Dr. Accounts Receivable 100 Cr. Sales 100

Recording Merch. Sales assuming the item selling price is $100; cost is $25 Cash Transaction

Dr. Cash 100 Cr. Sales 100 Dr. COGS 25 Cr. Merchandise Inventory 25 Sales 100 COGS 25 Gross Profit 75

Recording Purchases of Merchandise using Perpetual System Credit Transaction

Dr. Merchandise Inventory (Asset) $100 Cr. Accounts Payable $100

Recording Purchases of Merchandise using Perpetual System Cash Transaction

Dr. Merchandise Inventory (Asset) $100 Cr. Cash $100

What should we do with the freight cost for the seller?

Expense it because it is a selling cost to the seller /// Dr. Freight-Out (or Delivery Expense) 30 Cr. Cash (A/Payable) 30

When does the seller pay the freight cost?

If it's FOB SP -- No freight cost for the seller. If it's FOB Destination -- Freight charge is on the seller

In a perpetual inventory system, which account would be debited when goods are purchased with the intent of being resold?

Inventory

Which of the following accounts is not closed to Income Summary?

Inventory.

Which of the following accounts will appear in the trial balance of a merchandising company but not a service company?

Inventory.

Perpetual System

Keeps detailed records of the cost of each inventory purchase and sale

Example of 2/10, Net 30 - Invoice $3,800 - Purchase Returned $300 for defective goods

Net $3500 (= $3800-$300) to pay with 2/10 on the 10th day = $3500 - $70 (= $3500x 2% off = $70) = $3430 Journalized as: Dr. Accounts Payable 3500 Cr. Cash 3430 Cr. Merchandise Inventory 70

Periodic System

No records kept ; Inventory and COGS are determined at end of accounting period with a physical count of the inventory.

Which of the following expressions is incorrect? - Sales revenue - cost of goods sold - operating expenses = net income - Gross profit - operating expenses = net income - Net income + operating expenses = gross profit - Operating expenses - cost of goods sold = gross profit

Operating expenses - cost of goods sold = gross profit

Which of the following statements is incorrect? - Net income plus operating expenses equals gross profit. - Sales revenue less cost of goods sold less operating expenses equals net income. - Operating expenses less cost of goods sold equals gross profit. - Gross profit less operating expenses equals net income.

Operating expenses less cost of goods sold equals gross profit. /// Sales revenue less cost of goods sold equals gross profit. Gross profit less operating expenses equals net income. Therefore net income plus operating expenses equals gross profit.

In a periodic inventory system the entry to record the credit sale of merchandise affects which of the following accounts?

Sales Revenue

Gross profit is

Sales revenue less cost of goods sold.

All of the following items would be reported as other revenues and gains for a merchandiser except

Sales revenue.

Which of the following would not be considered a merchandising company?

Service firm

FOB Shipping Point

Title transfers at the time when items are loaded into the truck and buyer pays the freight to have the merchandise shipped from seller to buyer's warehouse

FOB Destination

Title transfers when goods is delivered. Hence, seller pays the freight to ship the merchandise from seller to buyer's warehouse.

Cost of goods sold is determined only at the end of the accounting period in

a periodic inventory system.

A company determines the cost of goods sold each time a sale occurs in

a perpetual inventory system only.

Retailers

buy and sell merchandise to consumers

FOB shipping point means that the

buyer pays the freight.

A company that maintains a perpetual inventory system has an inventory account balance of $50,000. The physical count of goods on hand totals $49,600. Which of the following adjusting entries is correct?

debit Cost of Goods Sold and credit Inventory.

In determining cost of goods sold

freight-in is added to net purchases.

Sales revenue less cost of goods sold is called

gross profit.

Payment terms || 2/10, Net 30

meaning 2% off the invoice or due 100% 30 days from the invoice date

After gross profit is calculated, operating expenses are deducted to determine

net income.

Net income is gross profit less

operating expenses.

Under a perpetual inventory system

purchases on account are debited to Inventory.

A merchandising company that sells directly to consumers is a

retailer.

An enterprise which sells goods to customers is known as a

retailer.

Gross profit will result if

sales revenue is greater than cost of goods sold.

Wholesalers

sell to retailers only

The primary source of revenue for a wholesaler is

the sale of merchandise.

To record the sale of goods for cash in a perpetual inventory system

two journal entries are necessary: one to record the receipt of cash and sales revenue, and one to record the cost of goods sold and reduction of inventory.