ACG exam 2 ch. 5-8

A company has the following: Units Cost per unit Dec. 1 Beginning balance 72 $90 Dec. 14 Purchase 124 $94 Dec. 21 Purchase 88 $98 The company sold 204 units at $126 each and has a tax rate of 30%. Assuming that a periodic inventory system is used, what is the company's gross profit using LIFO? (rounded to whole dollars) a) $6,784 b) $6,176 c) $8,112 d) $19,528 e) $18,920

b) $6,176 Sales revenue = 204 units x $126/unit = $25,704 Cost of goods sold using LIFO = (88 units x $98/unit) + [(204 - 88) x $94/unit] = $8,624 + 10,904 = $19,528 Gross profit = Sales revenue - Cost of goods sold = $25,704 - 19,528 = $6,176

Which of the following is an inventory account? a) Equipment b) Accounts receivable c) raw materials d) cash e) all these are inventory accounts

c) raw materials

In a period of inflation, the costs allocated to ending inventory will approximate their current cost if a) theFIFO method is used. b) the LIFO method is used. c) the average method is used. d) all of these

A Ending inventory approximates the current cost of inventory if ending inventory includes the most recently purchased inventory. Ending inventory includes the most recently purchased inventory is FIFO is used and the company assumes it sells the oldest inventory.

In a period of inflation, the inventory cost flow method that results in the lowest income taxes is the a) FIFO method. b) LIFO method. c) average cost method. d) gross profit method. e) None of these

B Taxes are low when income before taxes is low, and taxes are low when expenses (e.g., cost of goods sold) are high. Cost of goods sold is high in periods of inflation when the company uses LIFO (i.e., the company assumes it sells the recently purchased, expensive inventory).

A company uses the periodic inventory method.An overstatement of ending inventory in one period results in a) an understatement of the beginning inventory of the next period b) no effect on net income of the next period c) an understatement of net income of the next period d) an overstatement of the ending inventory of the next period e) an overstatement of net income of the next period.

C Overstating ending inventory understates the same year's cost of goods sold and overstates the same year's net income, retained earnings, and stockholders' equity. •Overstating ending inventory in one year overstates beginning inventory in the next year. •Ending inventory in one year becomes beginning inventory in the next year. An error in ending inventory in the current year does not become an error in ending inventory in the next year. •Overstating next year's beginning inventory overstates next year's cost of goods sold and understates next year's net income. •Since the current year's error overstated net income the current year's retained earnings and stockholders' equity were overstated, but the next year's net income is understated so too little is closed to retained earnings. In sum, retained earnings at the end of the next year is correct; it is neither overstated nor understated because two errors occurred and the errors offset one another.

The multiple-step income statement for a merchandiser shows each of the following except: a) gross profit. b) cost of goods sold. c) a sales revenue section. d) investing activities section.

D

The journal entry to record a sale of $700 on account with terms of 2/10, n/30 will include a) debit to Cash for $686. b) debit to Sales Discounts for $14. c) credit to Accounts Receivable for $700 d)credit to Sales Revenue for $700 e) credit to Sales Discounts for $14.

D Accounts receivable 700 Sales revenue 700

Understating ending inventory will overstate the following: a) Assets b) Net income c) Stockholders' equity d)Cost of goods sold e) None of these

D Effect of inventory errors on the balance sheet con be determined by using the basic accounting equation: if ending inventory is OVERSTATED then assets will be OVERSTATED, liabilities stay THE SAME, and equity is OVERSTATED If ending inventory is UNDERSTATED then assets will be UNDERSTATED, liabilities stay THE SAME, and equity will be UNDERSTATED

A company using the perpetual inventory system sells inventory on account to a customer and later accepts a return of the merchandise from the customer. The company record's the return by debiting: a) Purchases b) Purchase Returns c) Accounts receivable d) Inventory e) Cost of goods sold

D Seller using a perpetual inventory system records the sale using two journal entries: Accounts receivable XXX Sales revenue XXX Cost of goods sold YYY Inventory XXX Seller using a perpetual inventory system records the customer's return of inventory using two journal entries: Sales returns and allowances XXX Accounts receivable XXX Inventory YYY Cost of goods sold YYY

A company reports the following: 2020 2019 Ending inventory $ 34,000. $ 32,000 Cost of goods sold 182,000 163,500 Sales revenue 240,000 233,000 What is the company's days in inventory for 2020?

Inventory turnover= Cost of goods sold/Average inventory = 182,000/[(34,000 + 32,000)/2] = 5.515 Days in inventory = 365/Inventory turnover = 365/5.515 = 66.2 days

The company sells $1,000 of merchandise on account on April 26 with terms 2/10, n/30. What is the last day that the customer can pay and still receive the discount?

May 6 The terms of the sale are 2/10, n/30. The customer gets a 2% discount if payment is made no more than 10 days from the invoice date. The invoice date, or date of sale, is April 26. April has 30 days. There are four days in April after April 26. The customer can pay six days after the end ofApril and still be within the 10 day limit.

On May 12, a company sold merchandise on account to a customer for $2,000 with terms 2/10, n/30. On May 18, the customer returns merchandise worth $200. On May 24, the customer pays the company the balance due. What is the amount of cash received by the company on May 24? a) $1,800 b) $1,766 c) $1,760 d) $1,770 e) $2,000

a) $1,800 The amount received on May 24 is $1,8000. Because payment is not made within the discount period of 10 days, the amount received is $1,800 ($2,000 less the returned $200) with no discount.

A company has the following inventory units and costs: Number of units Cost per unit Beg. inventory, Jan. 1. 7,000 $11 Purchase, June 19 10,000 $12 Purchase, Nov. 8 4,000 $13 If 8,000 units are on hand at December 31, what is the cost of the ending inventory under FIFO using a periodic inventory system? a) $100,000 b) $89,000 c) $138,000 d) $104,000 e) $113,000

a) $100,000 [FIFO periodic ending inventory] Ending inventory under FIFO uses the most recent costs of inventory to compute ending inventory. Ending inventory = (4,000 x $13) + (4,000 x $12) = $100,000.

Sales revenue is $1,000,000, cost of goods purchased is $500,000, beginning inventory is $20,000, and cost of goods sold is $460,000. How much is ending inventory? a) $60,000 b) $80,000 c) $20,000 d) $40,000 e) $0

a) $60,000 Beginning inventory + Purchases - Ending inventory = Cost of goods sold 20,000 + 500,000 - Ending inventory = 560,000 Ending inventory = 20,000 + 500,000 - 460,000 = 60,000

Which of the following is not a component or step of the operating cycle for a service company? a) Buy inventory to be resold to customers b) Perform services for customers c) All of these are steps of the operating cycle of a service company d) Receive cash payments from customers e) Record an increase to accounts receivable when services are performed for customers on account

a) Buy inventory to be resold to customers The operating cycle of a service company involves performing services for customers who either pay cash immediately or pay later. If payment comes later, the service company records the sale on account (i.e., the service company increases accounts receivable), and later when the customer pays cash the service company increases cash and decreases accounts receivable. These steps do not including buying or selling inventory. Service companies do not sell inventory; they only sell services.

A company uses the perpetual inventory system. Which of the following transactions neither increases nor decreases its inventory account? a) Paying freight costs to deliver goods to a customer b) Selling inventory to a customer for cash c) All of these d) Purchasing merchandise on account e) Returning inventory to the supplier after buying it from the supplier for cash

a) Paying freight costs to deliver goods to a customer In a perpetual inventory system, companies record increases to inventory when they buy it and when customers return it, and they record decreases to inventory when they sell it. Paying freight charges to acquire inventory is part of the cost of buying inventory. However, the entry to record the payment of freight costs to ship goods to a customer decrease cash and increase freight out (i.e., delivery expense); it does not affect the inventory account. Similarly, when a grants a customer an allowance by reducing the purchasing price it does not affect the inventory account because sales allowances increase the Sales Returns and Allowances account (debit it) and decreases accounts receivable (credit it).

Which of the following statements is true? a) Specific identification method inventory valuation requires the physical flow of goods to be representative of the cost flow. b) All of these c) None of these d) LIFO inventory valuation requires the physical flow of goods to be representative of the cost flow. e) FIFO inventory valuation requires the physical flow of goods to be representative of the cost flow.

a) Specific identification method inventory valuation requires the physical flow of goods to be representative of the cost flow. The specific identification method has this constraint--the physical flow of goods must represent . There is no requirement for the physical flow of goods under the LIFO or FIFO inventory valuation concepts to match cost flow.

Gross profit for a merchandising company is net sales minus a) cost of goods sold. b) gross sales. c) cost of goods available for sale. d) sales discounts. e) operating expenses.

a) cost of goods sold. Gross profit equals sales minus cost of goods sold. Gross profit is reported on a multi-step income statement.

The journal entry to record a sale of $700 on account with terms of 2/10, n/30 will include a a) credit to Sales Revenue for $700. b) credit to Sales Discounts for $14. c) debit to Sales Discounts for $14. d) debit to Cash for $686. e) credit to Accounts Receivable for $700.

a) credit to Sales Revenue for $700. Record the sale on account with the following accounts debited and credited: Debit: Accounts Receivable for $1,200 Credit Sales Revenue for $1,200

A company uses a perpetual inventory system to record the following events involving a recent purchase of inventory: On May 1, it purchased merchandise for $40,000, terms 2/10, n/30. On May 3, it paid freight costs of $200 on merchandise purchased. On May 6, it returned $800 of merchandise to the supplier. On May 9, it paid the amount due to the supplier. As a result of these events, the company's inventory a) increased by $38,616. b) increased by $38,412. c) increased by $39,788. d) increased by $39,400. e) increased by $39,020.

a) increased by $38,616 [(Purchase - purchase returns) x (100% - discount percentage] [(40,000 - 800) x 98% + 200 = 38,616

On the first of the month, a company sells $100 of merchandise on account with terms of 2/10, n/30. On the third day of the same month, the customer returns merchandise with an invoice price of $20. On the tenth day of the same month, the customer pays the company. What journal entry will the company record it receives the customer's payment? a) $98.00 debit to Cash, $2.00 debit to Sales Discounts, and $100.00 credit to Accounts Receivable b) $78.40 debit to Cash, $1.60 debit to Sales Discounts, and $80.00 credit to Accounts Receivable c) $100 debit to Cash and a $100 credit to Accounts Receivable d) $78.40 debit to Cash, $1.60 debit to Sales Discounts, and $80.00 credit to Accounts Payable e) $78.40 deb it to Cash, $1.60 debit to Purchase Discounts, and $80.00 credit to Accounts Payable

b) $78.40 debit to Cash, $1.60 debit to Sales Discounts, and $80.00 credit to Accounts Receivable The original sale is reduced from $100 by the $20 return to a $80 balance due. The 2% discount is based on the $80 balance due, which is $80 times 2%, or $1.60. The retailer collects $78.40 (i.e., $80 - $1.60). The retailer also reduces its Accounts Receivable by $80 because the customer is paying and owes nothing more to the retailer. Finally, the retailer also records this discount as a debit to Sales Discounts.

A company uses the periodic inventory method. An error in the physical count of goods on hand at the end of a period resulted in a $1,000 overstatement of the ending inventory. The effect of this error in the current period is that cost of goods sold is (i) _________________ and net income is (ii) __________________. a) (i) overstated; (ii) understated b) (i) understated; (ii) overstated c) (i) understated; (ii) understated d) (i) understated; (ii) neither overstated nor understated e) (i) overstated; (ii) overstated

b) (i) understated; (ii) overstated In the periodic inventory system, cost of goods sold is computed at the end of the period using a formula that includes ending inventory which is determined by taking a physical inventory. Sometimes, the ending inventory is mis-counted (i.e., understated or overstated). An error in ending inventory results in an error in cost of goods sold in the opposite direction. For example, understating ending inventory overstates cost of goods sold. Moreover, an error in cost of goods sold causes an error in gross profit, net income, retained earnings, and stockholders' equity. For example, overstating cost of goods sold understates gross profit and retained earnings.

A company has the following: Beginning inventory $80,000 Ending inventory $120,000 Cost of goods sold $560,000 Sales $800,000 Net income $100,000 What is the company's days in inventory? a) 77.7 days. b) 65.2 days. c) 54.5 days. d) 45.6 days. e) 71.3 days.

b) 65.2 days. Inventory turnover = cost of goods sold divided by average inventory Inventory turnover = $560,000/[(80,000 + 120,000)/2] = 5.60 Days in inventory = 365/inventory turnover Days in inventory = 365/5.60 = 65.2 days in inventory

The direct write-off method of accounting for bad debts a) uses a contra asset account b) does not require estimates of bad debt expense c) uses an allowance account d) requires more journal-entries than the allowance method e) is the preferred method under GAAP

b) does not require estimates of bad debt expense To account for uncollectible accounts, companies use either (1) the direct write-off method or (2) an allowance method. Under the direct write-off method, a company records an increase to bad debt expense and a decrease to accounts receivable wjen the company determines that a receivable from a particular customer is uncollectible. The direct write-off method shows only actual losses from uncollectible receivables. It does not record estimated bad debts

A company has the following data: Dec. 1 Inventory 30 units for $5.20 per unit Dec. 8 Purchase 150 units for $5.00 per unit Dec. 17 Purchase 70 units for $5.40 per unit Dec. 25 Purchase 50 units for $5.10 per unit There are 105 units of ending inventory on hand at December 31. What is the company's ending inventory using LIFO and a periodic inventory system? a) $552 b) $987 c) $531 d) $1,008 e) $897

c) $531 Goods available for sale is 300 units (i.e., 30 + 150 + 70 + 50 = 300 units) Ending inventory = 105 units Cost of goods sold = goods available for sale - ending inventory = 300 units - 105 units = 195 units Using LIFO & periodic, the cost of goods sold includes the newest 195 units and ending inventory includes the 105 oldest units. Ending inventory = (30 x $5.20) + [75 x $5.00] = $531

A company has the following: Cost Data Market Data Tin $22,000 $19,600 Steel 17,000 18,500 Aluminum 26,500 28,600 Using the lower-of-cost-or-market, how much is the value of the ending inventory? a) $65,500 b) $66,700 c) $63,100 d) $65,200 e) $56,500

c) $63,100 Cost is compared to market for each inventory category as follows: Tin = $19,600 Steel = $17,000 Aluminum = $26,500 Total = $63,100

During the current year, a company has sales on account of $264,000, cash sales of $108,000, and collections on account of $168,000. In addition, the company collected $2,900 from a customer whose account the company had written off as uncollectible in the prior year. As a result of these transactions, the current year's change in the accounts receivable balance is a a) $204,000 increase b) $168,000 increase c) $96,000 increase d) $93,1000 increase e) $201,100 increase

c) $96,000 increase Accounts receivable increase by sales on account, decrease when cash is collected on customers' accounts, increased and decreased by equal amounts when previously written off accounts are recovered = $264,000 - 168,000 + 2,900 -2,900 = $96,000 Cash sales do not affect accounts receivable

A company has net sales of $400,000, cost of goods sold of $300,000, and operating expenses of $20,000. What is its gross profit rate? a) 33% b) 20% c) 25% d) 50% e) 75%

c) 25% Gross profit = Net sales - Cost of goods sold Gross profit = $400,000 - 300,000 = $100,000 Gross profit rate = Gross profit/Net sales Gross profit rate = $100,000/$400,000 = 0.25 or 25%

A corporation has the following:Cost of goods sold, $85,000Operating income, $10,000Sales discounts, $3,000Sales returns and allowances, $12,000Sales revenue, $140,000Net income, $5,000Which of the following is closest to this company's profit margin? a) 28.57% b) 25% c) 4% d) 12.5% e) 6.67%

c) 4% Net sales = Sales revenue minus sales returns and allowances minus sales discounts Net sales = 140,000 - 12,000 - 3,000 = 125,000 Profit margin = Net income divided by net sales Profit margin = 5,000/125,000 = 0.04 (or 4%).

A company uses a perpetual inventory system. It purchased $10,000 of merchandise with terms of 2/10, n/30. It also must pay a $200 shipping charge. The company paid for both the merchandise and the shipping charge nine days after their invoice date. Which of the following is part of the journal entry the company records when it pays the shipping charge? a) A debit to Freight-in for $200 b) A credit to Accounts Payable for $200 c) A debit to Inventory for $200 d) A debit to Cash for $200 e) A debit to Freight-out for $200

c) A debit to Inventory for $200 In a perpetual inventory system, all of the cost of acquiring merchandise (including the cost of having the inventory delivered to the purchaser) is recorded as part of the cost of the inventory. The cost of the merchandise and the shipping charges should both be debited to the inventory account. Suppliers sometimes offer discounts (such as 2/10, n/30). However, discounts are offered by suppliers of merchandise and not by shippers. The journal entry for paying the shipping charges includes a debit to inventory for $200 and a credit to cash for $200.

Which of the following statements about inventory systems is correct? a) A periodic inventory system computes cost of goods sold each time a sale occurs. b) None of these c) A perpetual inventory system provides better control over inventories than does a periodic inventory system. d) A periodic inventory system provides better control over inventories than does a perpetual inventory system. e) A perpetual inventory system computes cost of goods sold only at the end of the accounting period.

c) A perpetual inventory system provides better control over inventories than does a periodic inventory system. Under periodic inventory, details about the cost of goods on hand is not available until the end of the accounting period. In contrast, perpetual inventory requires cost of goods sold to be recognized at the time of sale so it contains more accurate values of goods on hand at any time

What accounting concept is employed when using the lower-of-cost-or-market valuation? a) Cost constraint b) Economic entity concept c) Conservatism d) Revenue recognition e) Going concern assumption

c) Conservatism Conservatism dictates the lower-of-cost-or-market inventory valuation. Inventory that has not yet sold has not reached revenue recognition. In simple terms, conservatism means that accounting rules are designed to report assets, income, etc. on a conservative basis—that financial reports should not overstate a company assets, profits, etc. The lower-of-cost-or-market principle avoids overstating ending inventory on a company's balance sheet.

A corporation uses the perpetual inventory system. On May 1, it purchased merchandise on account for $10,000 with terms 2/10, n/30. It pays a shipping company $200 to transport the merchandise from the seller. It returns merchandise with an invoice price of $1,000 to the seller on May 7. On May 30, it pays for the merchandise it retains. How would it record the payment on May 30 for the merchandise it retained? a) Debit accounts payable for $9,000; credit cash for $8,820; and credit inventory for $180. b) Debit accounts payable for $9,000; credit cash for $8,820; and a credit to purchase discounts for $180. c) Debit accounts payable for $9,000; credit cash for $9,000. d) Debit accounts payable for $10,000; credit cash for $10,000. e) Debit accounts payable for $9,000; credit inventory for $9,000.

c) Debit accounts payable for $9,000; credit cash for $9,000. The company purchasing merchandise uses the perpetual inventory system. When it pays the balance due for the purchase of inventory after the discount period, it pays the invoice price of the inventory not returned to the seller without any purchase discount. The cash paid to the seller is $9,000 (i.e., $10,000 - 1,000 = $9,000).

In a period of declining inventory costs, which inventory flow assumption will result in the highest net income? a) FIFO b) Accelerated method c) LIFO d) Net income is not affected by inventory method cost flow assumptions. e) Average cost method

c) LIFO First-in, first-out (FIFO) considers the oldest inventory to be sold. In contrast, last-in, first-out (LIFO) considers the newest inventory to be sold. The highest net income occurs when the least expensive inventory is considered to be sold. When prices are declining, the least expensive inventory is the newest inventory. So, LIFO produces the highest net income when prices are declining.

Which inventory method usually results in cost of goods sold being the closest to the current cost of replacing inventory? a) All of these inventory methods result in the same cost of goods sold value being reported on financial reports. b) Average-cost method c) LIFO method d) FIFO method e) Specific identification method

c) LIFO method In order for the cost of goods sold to most closely correspond to the current replacement cost of inventory, cost of goods sold should include the most recently purchased inventory. Last-in, first-out (LIFO) uses the newest inventory to compute cost of goods sold

The account called Allowance for Doubtful Accounts a) appears under the heading "Other Assets" on the balance sheet b) is reported on the balance sheet as an offset against total current assets c) is deducted from accounts receivable on the balance sheet to compute cash realizable value d) reduces net income reported on the income statement e) increases the net realizable value of accounts receivable reported on the balance sheet

c) is deducted from accounts receivable on the balance sheet to compute cash realizable value Accounts receivable is an asset reported on the balance sheet. The Allowance for Doubtful Accounts is a contra asset account reported on the balance sheet. Accounts receivable minus the Allowance for Doubtful Accounts equals cash realizable value. It is also called net realizable value.

Goods held on consignment are a) not available for sale. b) an reported as an increase to cost of goods sold before they are sold. c) not owned by the company holding them. d) included in the ending inventory of the business that holds them. e) included as part of no one's ending inventory.

c) not owned by the company holding them Possession of goods does not meet the company owns the goods. For example, companies sometimes hold goods on consignment for others without owning them. Goods held on consignment for others should not be reported on the company's balance sheet; those goods should be reported on the balance sheet of the person or company that owns them.

A company uses LIFO. At the beginning of the current year its inventory was $200,000, and at the end of the current year its inventory is $250,000. At the start of the year its LIFO reserve was $30,000 and at the end of the year its LIFO reserve is $40,000. The company operates in an inflationary environment. If the company used FIFO instead of LIFO, its ending inventory would be a) $160,000. b) $210,000. c) $250,000. d) $290,000. e) $240,000.

d) $290,000. The LIFO reserve is the difference between inventory using LIFO and inventory using FIFO. If the company operates in an inflationary environment (i.e., rising prices), then the LIFO reserve is a positive number, add the LIFO reserve to LIFO inventory to determine the company's FIFO inventory. FIFO ending inventory = LIFO ending inventory + LIFO reserve = $250,000 + 40,000 = $290,000

At December 31, Moore Company's inventory records indicated a balance of $420,000. Upon further investigation it was determined that this amount included the following: (1) $54,000 in inventory purchases made by Moore shipped from the seller December 29 terms FOB shipping point, but not due to be received until January 2. (2) $25,000 in inventory purchases made by Moore shipped from the seller December 29 terms FOB destination, but not due to be received until January 2. (3) $6,000 in goods sold by Moore with terms FOB destination on December 29. The goods are not expected to reach their destination until January 5. (4) $7,000 in goods sold by Moore with terms FOB shipping point on December 29. The goods are not expected to reach their destination until January 4. (5) $15,000 of goods owned by Moore Company held on consignment by Dollywood Company. What is Moore's correct ending inventory balance at December 31? a) $334,000 b) $351,000 c) $365,000 d) $388,000 e) $373,000

d) $388,000 Do not include the following in inventory: 1. FOB destination purchases not yet received (i.e., $25,000) 2. FOB shipping point goods sold and shipped (i.e., $7,000) 3. Goods held on consignment (i.e., None). Ending inventory = $420,000 - 25,000 - 7,000 = $388,000

A company uses the periodic inventory method. An error in the physical count of inventory at the end of a period resulted in an understatement of the ending inventory. The effect of this error in the current period is that gross profit is (i) _________________ and retained earnings is (ii) ___________________. a) (i) overstated; (ii) understated b) (i) understated; (ii) neither overstated nor understated c) (i) overstated; (ii) overstated d) (i) understated; (ii) understated e) (i) understated; (ii) overstated

d) (i) understated; (ii) understated In the periodic inventory system, cost of goods sold is computed at the end of the period using a formula that includes ending inventory which is determined by taking a physical inventory. Sometimes, the ending inventory is mis-counted (i.e., understated or overstated). An error in ending inventory results in an error in cost of goods sold in the opposite direction. For example, understating ending inventory overstates cost of goods sold. Moreover, an error in cost of goods sold causes an error in gross profit, net income, retained earnings, and stockholders' equity. For example, overstating cost of goods sold understates gross profit and retained earnings.

A company has the following: Sales revenue $1,800,000 Beginning inventory $160,000 Ending inventory $240,000 Gross profit $600,000 Net income $100,000 What is its inventory turnover ratio? a) 2.5 times b) 3.0 times c) 3.75 times d) 6.0 times e) 7.0 times

d) 6.0 times Cost of goods sold is the difference between sales revenue and gross profit: $1,800,000 - $600,000 = $1,200,000 .Inventory turnover ratio = Cost of goods sold divided by average inventory: $1,200,000/[($160,000 + $240,000)/2] = 6.0.

Inventory is accounted for at cost. After a company has determined the quantity of units of inventory, it applies unit costs to the quantities to determine the total cost of inventory and the cost of goods sold. Which of the following statements is not a method for computing the cost of inventory? a) Last-in, first-out b) First-in, first-out c) Average-cost d) Allowance estimation e) Specific identification

d) Allowance estimation A company's management decides which method of computing the cost of inventory. Choices of method include (1) specific identification, (2) first-in, first-out, (3) last-in, first-out, and (4) average cost methods.

Under what inventory system is cost of goods sold determined after each sale? a) Periodic inventory system b) Double entry inventory system c) No inventory systems d) Perpetual inventory system e) Single entry inventory system

d) Perpetual inventory system Under the perpetual inventory system, cost of goods sold is determined with each sale.

A company's gross profit rate is lower this year compared to the prior year. Which of the following would not be a possible cause for this decline in the gross profit rate? a) All of these would explain the decline in Bolton's gross profit rate. b) The company's average margin between selling price and inventory cost decreased. c) The company began paying higher prices to suppliers without passing these costs on to customers. d) The company began selling products with a higher markup. e) The company offered more sales discounts to customers in order to sell as many units of inventory as the prior year.

d) The company began selling products with a higher markup. Recall that gross profit rate equals gross profit divided by net sales. A decline in the gross profit rate suggest either a decline in gross profit and/or an increase in net sales. A decline in a company's gross profit rate may be caused by selling products with smaller gross margins (i.e., lower "mark-ups"), lowering prices and/or offering more price discounts due to increases in competition, or increases in sales allowances offered to customers.

If goods in transit are shipped FOB destination a) who has title cannot be determined. b) the transportation company has title to the goods while the goods are in transit. c) the buyer has title to the goods once they are given to the transportation company. d) the seller has title to the goods until they are delivered to the buyer. e) no one has title to the goods until they are delivered.

d) the seller has title to the goods until they are delivered to the buyer

If goods in transit are shipped FOB destination a) who has title cannot be determined. b) the transportation company has title to the goods while the goods are in transit. c) the buyer has title to the goods once they are given to the transportation company. d) the seller has title to the goods until they are delivered to the buyer. e) no one has title to the goods until they are delivered.

d) the seller has title to the goods until they are delivered to the buyer. In FOB destination, ownership transfers when the buyer receives the purchased goods from the public carrier rather than when the public carrier accepts them from the seller

Sales revenue total $15,000. Sales returns and allowances are $750 and sales discounts are $1,000. The seller also pays $100 to ship the merchandise to the buyer. How much is net sales? a) $13,150 b) $15,000 c) $14,000 d) $14,250 e) $13,250

e) $13,250 Net sales = sales revenue - sales returns and allowances and sales discounts Net sales = $15,000 - 750 - 1,000 = $13,250 Paying to ship merchandise to a buyer is a delivery expense rather than a part of net sales.

A company uses the allowance method to estimate its uncollectible accounts. It estimates that $44,000 of its receivables are uncollectible at year-end. Prior to recording year-end adjusting entries, the company has an $12,000 credit balance in its allowance for doubtful accounts account. What is the bad debt expense for the current year? a) $44,000 b) $0 c) $56,000 d) $12,000 e) $32,000

e) $32,000 After the year-end adjusting entry, the allowance for doubtful accounts will equal the estimated uncollectible accounts which is given as $45,000. It will have a credit balance because the allowance for doubtful accounts is a contra assets (and contra assets normally have credit balances). Before the adjustment, it has a $11,000 credit balance. So, the year-end adjusting entry will credit the allowance for doubtful accounts by $34,000, and it will debit the bad debt expense for $34,000

A company's accounting records show the following account balances: Purchase Discounts $ 6,000 Purchases 330,000 Beginning Inventory 38,000 Ending Inventory 42,000 Sales 690,000 Using the periodic system, the cost of goods sold is a) $328,000. b) $324,000. c) $370,000. d) $362,000. e) $320,000.

e) $320,000. Cost of goods sold = Beginning inventory + purchases - purchase returns & allowances - purchase discounts - ending inventory Cost of goods sold = 38,000 + 330,000 − 0 - 6,000 - 42,000 = 320,000

A company's accounting records show the following account balances: Beginning Inventory $28,000 Ending Inventory $10,000 Freight-In $22,500 Freight-Out $13,500 Purchases $385,000 Purchase Returns and Allowances $3,200 Purchase Discounts $13,000 The company uses the periodic inventory system. Based on the information above compute cost of goods sold. a) $391,300 b) $400,300 c) $386,800 d) $422,800 e) $409,300

e) $409,300 Net purchases = Purchases - Purchase discounts - Purchase R&A + Freight In Net purchases = 385,000 - 13,000 - 3,200 + 22,500 = 391,300 Cost of goods sold = Beginning inventory + Net purchases - Ending inventory Cost of goods sold = 28,000 + 391,300 - 10,000 = 409,300

A company sold merchandise for $95,000. Returns from customers totaled $2,000. If the company's gross profit rate is 40%, what is the company's cost of goods sold? a) $118,200 b) $57,000 c) $38,000 d) $37,200 e) $55,800

e) $55,800 Net sales = Sales - Sales returns & allowances - Sales discounts Net sales = $95,000 - 2,000 = $93,000 Gross profit rate = Gross profit/Net sales 0.40 = Gross profit/$93,000 Gross profit = 0.40 x $93,000 = $37,200 Gross profit = Net sales - cost of goods sold $37,200 = $93,000 - cost of goods sold Cost of goods sold = $93,000 - 37,200 = $55,800

A company has the following data: Units Cost per unit Inventory, Dec. 1 5,000 $8 Purchase, Dec. 12 15,000 $10 Purchase, Dec. 28 20,000 $12 If the company has 7,000 units on hand at December 31, how much is the cost of ending inventory under the average-cost method in a periodic inventory system? a) $56,000 b) $84,000 c) $93,150 d) $70,000 e) $75,250

e) $75,250 Ending inventory equals the average cost per unit times the number of units of inventory in ending inventory. The average cost per unit equals the total cost of all inventory amounts divided by the number of inventory units. Average cost per unit = [(5,000 x $8) + (15,000 x $10) + (20,000 x $12)] ÷ (5,000 + 15,000 + 20,000) = $430,000 ÷ 40,000 units = $10.75 per unit. Ending inventory = $10.75 x 7,000 units = $75,250.

A company purchased merchandise with an invoice price of $2,000 and credit terms of 3/10, n/40. Assuming a 360 day year, what is the implied annual interest rate inherent in the credit terms? a) 6% b) 12% c) 18% d) 54% e) 36%

e) 36% The company buying merchandise can wait 10 days and still receive a 3% discount. Otherwise, it can wait an additional 30 days and pay the full invoice amount without being overdue. In other words, a 30-day difference produces 3% interest. An interest rate of 3% in 30 days is equivalent to an interest rate of 35% in 360 days (i.e., 3% x 360/30).Alternatively:The company must pay the invoice no later than 40 days after the sale. If it pays no later than 10 days after the invoice date, the company gets a 3% discount (i.e., 3% x $2,000 = $60). So, the company can save $60 if it pays 30 days before the due date.Interest = Principal x Interest rate x Time$60 = $2,000 x Interest rate x (40-10)/360Solving for the interest rate:Interest rate = [360/(40-10)] x $60/$2,000 = 0.36 (i.e., 36%)

A corporation uses the perpetual inventory system. On May 1, it sells merchandise on account for $10,000 with terms 2/10, n/30. The corporation had paid $6,000 to acquire the merchandise. On May 7, the customer returns merchandise with an invoice price of $1,000 to the corporation. The merchandise returned to it had cost the corporation $600. On May 10, the corporation receives payment for the merchandise retained by the customer. How would the corporation record the return of merchandise from the customer on May 7? a) It would record two journal entries. Debit sales returns and allowances for $1,000; credit inventory for $1,000. Debit cost of goods sold for $600; credit accounts receivable for $600. b) Debit inventory for $1,000; credit sales returns and allowances for $1,000. c) Debit sales returns and allowances for $980; credit accounts receivable for $980. d) Debit sales returns and allowances for $1,000; credit accounts receivable for $1,000. e) It would record two journal entries. Debit sales returns and allowances for $1,000; credit accounts receivable for $1,000. Debit inventory for $600; credit cost of goods sold for $600.

e) It would record two journal entries. Debit sales returns and allowances for $1,000; credit accounts receivable for $1,000. Debit inventory for $600; credit cost of goods sold for $600. The company selling merchandise uses the perpetual inventory system. When it sells inventory, it should credit sales revenue for the invoice price of merchandise sold, and when a customer returns merchandise it should debit sales returns and allowances for the invoice price of the portion of the merchandise returned. Because the company selling merchandise uses the perpetual inventory system, it also immediately increases inventory and decreases cost of goods sold by the cost of the inventory returned.

Which of the following is true about a merchandiser? a) It sells its goods and services only to manufacturing companies. b) It does not have a cost of goods sold account. c) It has no inventory. d) Its revenue primarily comes from the performance of services. e) Its revenue primarily comes from the sale of merchandise.

e) Its revenue primarily comes from the sale of merchandise A merchandiser is a company that earns revenue by selling merchandise (i.e., inventory) rather than selling services..

Which of the following is an inventory account? a) Equipment b) Cash c) Accounts receivable d) All of these are inventory accounts e) Raw materials

e) Raw materials Equipment is not an inventory account. Equipment consists of items used in the production of income that are not held for sale. Inventory can include raw materials, work in process, and finished goods. Raw materials is an inventory account that contains the cost of materials that have not yet been started into the production process. Work in process is an inventory account that contains the cost of goods started, but not completed. Finished goods is an inventory account that contains the cost of goods completed that are ready to sell.