Chapter 6 Smartbook

Service companies sell services rather than ____

goods

A sales discount with terms of 1/10,n/30 means the buyer receives a _____ % discount if paid within _____ days.

1;10

Which step must happen first when determining Cost of Goods Sold using a periodic inventory system? A. Compute and record Cost of Goods Sold. B. Count the number of units on hand.

B

What are the two stages of accounting for a purchase discount using the gross method? (Check all that apply.) A. The Inventory account is first reduced by the expected discount. B. The purchase is first recorded at full cost. C. The purchase is first recorded at the discounted amount D. The Inventory account is later reduced if payment is made within the discount period. E. The Accounts Payable account is later reduced by the discounted amount.

B and D

The journal entry to record the payment within the discount period for goods previously purchased on account causes _____. (Check all that apply.) A. total assets to increase B. total assets to decrease C. total liabilities to increase D. total stockholders' equity to increase E. total liabilities to decrease F. total stockholders' equity to decrease

B and E

Select all that apply Which of the following are reported on the income statement? (Check all that apply.) A. Inventory B. Cost of Goods Sold C. Sales Revenue D. Gross Profit E. Goods Available to Sell

B, C, D

In a perpetual system, the entry to record the sale of merchandise to a customer on account would include a ______. (Check all that apply.) A. debit to Inventory B. debit to Cost of Goods Sold C. credit to Accounts Receivable D. debit to Sales Revenue E. debit to Accounts Receivable F. credit to Inventory G. credit to Cost of Goods Sold H. credit Sales Revenue

B, E, F, H

ABC Company had beginning inventory of $20,000, purchases of $81,000, and ending inventory of $24,000. Sales revenue was $160,000. What is ABC's gross profit percentage? Multiple choice question. A. 10% B. 88% C. 52% D. 47%

C

Beginning Inventory + Purchases = _____. Multiple choice question. A. Periodic Inventory B. Cost of Goods Sold on the income statement C. Goods Available for Sale D. Inventory on the balance sheet

C

Bijoux Company has Net Sales of $40,000; Beginning Inventory of $5,000; Purchases of $25,000 and Ending Inventory of $7,000. Cost of Goods Sold equals ______. Multiple choice question. A. $40,000 B. $25,000 C. $23,000 D. $30,000

C

In a perpetual inventory system, the buyer of merchandise with the shipping terms FOB shipping point will ______. A. not pay for the transportation B. credit Freight-in Expense C. add the transportation costs to its Inventory account D. debit Freight-in Expense

C

Walmart sells a bike that cost $100 to a customer for $250 cash. Using a perpetual inventory system, the entry to record the sale includes a debit to _____ and credit to ______ ______for $250. The entry to record the cost of the sale includes a debit to Cost of Goods Sold and a credit to_______ for $100

cash, sales; revenue; inventory

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

inventory

A ______ inventory system records the Cost of Goods Sold with a debit to Cost of Goods Sold and a credit to Inventory (beginning) and credit to Purchases. (Enter one word per blank.)

periodic

The _____ inventory system records all inventory-related transactions in the inventory account (e.g. transportation, purchase returns and allowances, purchase discounts) and reduces inventory at the time of sale. The _______ inventory system uses separate accounts for these items and records cost of goods sold at the end of the accounting period. (Enter one word per blank.)

perpetual; periodic

A major drawback to the periodic inventory system is ______. a. the amount of inventory on hand and sold is unavailable during the accounting period B. it is difficult to know the exact amount of purchases C. the need to use scanners in order for cost of goods sold to be determined D. it is difficult to maintain because inventory is updated after each sale

A

Ace Electronics, which uses a perpetual inventory system, recorded a debit to Sales Returns & Allowances and a credit to Accounts Receivable, along with a debit to Inventory and a credit to Cost of Goods Sold. What business event must have taken place? A. The customer received a damaged product and returned it. B. The customer sent in a partial payment and promised to pay the balance next month. C. The customer received a damaged product, but kept the product and asked for a reduction in the price. D. The customer received a discount because the invoice was paid on time.

A

Berkley Company had beginning inventory of $4,000 and purchases of $20,000. If half of its inventory is sold, Berkley's total goods available for sale for the period will ______. A. be split between cost of goods sold and ending inventory B. appear only as an asset on the income statement C. appear only as an expense on the balance sheet D. appear only as an expense on the income statement

A

Gotit Inc. paid an invoice for $1,000 of merchandise plus shipping of $100. If the terms were 2/10, n/30, and the bill was paid within one week of receipt, how much cash was paid? Multiple choice question. A. $1,080 B. $1,100 C. $1,078 D. $1,000

A

If a seller sells its merchandise with the shipping terms FOB destination, it credits Revenue when the merchandise is _______. A. received by the customer B. paid for by the customer C. shipped from the seller's place of business D. ordered by the customer

A

Inventory account consists of all ______. A. costs needed to get the inventory ready for sale B. purchases less sales discounts C. costs paid to the supplier less freight-in D. purchases less ending inventory

A

On May 1, Doormart received an order from a customer. The goods were shipped FOB shipping point on May 3. The customer received the goods on May 5 and paid for the merchandise on June 1. When should Doormart record the sale? Multiple choice question. A. May 3 B. May 1 C. May 5 D. June 1

A

The Inventory account may be credited for ______. A. purchase returns and allowances B. freight-in C. payment of inventory purchased on account D. purchases on account

A

Which inventory system requires purchases of merchandise to be recorded in the inventory account instead of the purchases account? A. The perpetual inventory system B. The periodic inventory system

A

Which inventory system requires that the Inventory account be updated when merchandise is purchased? A. Perpetual system B. Both perpetual and periodic systems C. Periodic system

A

A multistep income statement is useful to financial statement users because it ______. (Select all that apply.) A. separates income statement items into meaningful components B. provides the amount of resources available to use in the future C. separates cost of goods sold from other operating expenses, which allows the calculation of gross profit

A and C

Select all that apply In a periodic system, for Cost of Goods Sold to be updated, which of the following must occur? (Check all that apply.) Multiple select question. A. Take a physical count of inventory. B. Nothing has to be done. Cost of Goods Sold sold is kept up to date each time a product is sold. C. Compute Cost of Goods Sold sold by subtracting Ending Inventory from Goods Available for Sale.

A and C

Which line items are found on a multi-step but not on a single-step income statement. (Check all that apply.) A. Income from Operations B. Cost of Goods Sold C. Gross Profit D. Net Sales E. Net Income

A and C

In which of these situations would a merchandiser record revenue? (Select all that apply.) A. Goods were sent FOB Shipping Point but have not yet arrived at the buyer's place of business. B. The customer paid for the goods in advance of the obligation being fulfilled and before the goods have been transferred to the customer. C. Goods were sent FOB Destination but have not yet arrived at the buyer's place of business. D. The obligation has been fulfilled and control of the goods has been transferred to the customer.

A and D

Sales returns and allowances ______. (Select all that apply.) Multiple select question. A. reduce the amount the seller expects to receive from customers B. are adjusted for at the end of the accounting period for estimated returns and allowance expected to occur in the following months C. are typically recorded after the initial sale when the actual return or allowance occurs D. increases the amount the seller expects to receive from customers E. are required to be recorded at the time of the initial sale

A, B, and C

Which of the following items are netted against Sales Revenue to arrive at Net Sales (Sales Revenue to net sales)? (Select all that apply.) A. Sales Returns B. Cost of Goods Sold C. Gross Profit D. Sales Allowances E. Deferred Revenue F. Sales Discounts

A, D, F

Select all that apply Which of the following are found on the income statement of a merchandiser? (Check all that apply.) A. Gross Profit B. Inventory C. Accounts Receivable D. Cost of Goods Sold E. Deferred Revenue F. Cash G. Sales Revenue

A, D, G

ABC Corp. sells a product for $1,000 cash that cost $600. The journal entry(ies) for this transaction using a perpetual inventory system include a debit to ______. A. Inventory of $600 and a credit to Cash of $600; a debit to Cost of Goods Sold of $600 and a credit to Sales Revenue of $600 B. Cash of $1,000 and a credit to Sales Revenue of $1,000; a debit to Cost of Goods Sold of $600 and a credit to Inventory of $600 C. Cash of $1,000 and a credit to Sales Revenue of $1,000 D. Cash of $1,000 and a credit to Deferred Revenue of $1,000; a debit to Cost of Goods Sold of $600 and a credit to Accounts Payable of $600

B

Breyer Company bought inventory FOB shipping point from Cellar Company for $4,000 cash, including shipping charges. On December 31, the last day of the accounting year, the goods were on a truck owned by Common Carrier Company, and not expected to arrive until January 3. Which company should include these goods in its December 31 inventory? A. Cellar Company owns the inventory, but Common Carrier Company has possession of it. Each of them should include half of the inventory, $2,000 each. B. Breyer Company should include the $4,000 in its inventory. C. Common Carrier Company should include the $4,000 in its inventory, since the inventory is on its truck. D. Cellar Company owns the inventory, but Common Carrier Company has possession of it. Neither can include the $4,000 in its December 31 inventory.

B

Corporations with high sales volume, such as WalMart, usually have ______. A. high gross profit percentages B. low gross profit percentages C. the same gross profit percentage as high-end retailers

B

Cost of Goods Sold on the income statement reports the ______. A. cost of merchandise available to sell at the end of the period B. cost times the quantity of goods sold during the period C. cost of merchandise purchased during the period D. amount of cash paid during the period

B

In a perpetual system, the entry to record the sale of merchandise includes a ______. A. credit to Cost of Goods Sold B. debit to Cost of Goods Sold C. credit to Purchases D. debit to Purchases

B

Inventory shrinkage as a result of theft, damage or obsolescence that is discovered during a physical inventory count at the end of the accounting period is recorded with a decrease to Inventory ______. A. in both periodic and perpetual systems B. only in a perpetual system

B

Merchandisers record revenue when they ______. A. deliver the goods and collect the cash from their customers B. fulfill their performance obligations by transferring control of the goods to customers C. receive the order to deliver goods to customers D. receive cash in advance from their customers

B

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? Multiple choice question. A. 1/4 in November, December, January and February B. November C. October D. February

B

Sales Returns and Allowances are reported on the ______. Multiple choice question. A. income statement as a reduction to Cost of Goods Sold B. income statement C. balance sheet as a contra-account D. balance sheet as a reduction to Gross Profit

B

The income statement for ABC Company shows Gross profit of $144,000; Operating expenses of $130,000; and Cost of goods sold of $216,000. What is net sales revenue? A. $490,000 B. $360,000 C. $274,000 D. $246,000

B

The purchase of merchandise on account is recorded with a debit to ______ and a credit to ______. A. Accounts Receivable; Inventory B. Inventory; Accounts Payable C. Cash; Inventory D. Inventory; Accounts Receivable E. Accounts Payable; Inventory Inventory; Cash

B

In which company would you rather invest? A. A company with low gross profit percentage and low sales volume B. A company with low gross profit percentage and high cost of goods sold C. A company with high gross profit percentage and high sales volume

C

Inventory is reported as a(n) ______ on the ______. A. expense; balance sheet B. current asset; balance sheet and income statement C. current asset; balance sheet only D. expense; income statement

C

The Cost of Goods Sold equation is ______. A. Beginning Inventory + Purchases + Ending Inventory B. Beginning Inventory - Purchases + Ending Inventory C. Beginning Inventory + Purchases - Ending Inventory D. Beginning Inventory - Purchases - Ending Inventory

C

The Inventory balance on the balance sheet reports the ______. A. cost of goods that have been delivered to customers during the period B. price times the quantity of goods sold C. cost of goods available for sale D. cost of merchandise purchased during the period

C

The seller of inventory pays for shipping if the shipping terms are FOB ______. (Enter one word per blank.) A. shipping point B. discount C. destination

C

Using a perpetual inventory system, what is recorded when a customer returns a product and gets the cash back and the product is put back on the store shelf to be resold? A. A debit to Cash and a credit to Sales Returns & Allowances; and a debit to Cost of Goods Sold and a credit to Inventory B. A debit to Sales Returns & Allowances and a credit to Cash C. A debit to Sales Returns & Allowances and a credit to Cash; and a debit to Inventory and a credit to Cost of Goods Sold D. A debit to Cash and a credit to Sales Returns & Allowances; and a debit to Inventory and a credit to Cost of Goods Sold

C

What does FOB shipping point mean? A. Goods are owned by the buyer as soon as the sales contract is signed. B. Goods are owned by the buyer as soon as they arrive at the buyer's place of business. C. Goods are owned by the buyer when they leave the seller's place of business.

C

Which inventory system updates the inventory account only at the end of the accounting period? A. Perpetual B. LIFO C. Periodic D. FIFO

C

XYZ Company sold merchandise for $5,000, with payment terms of 2/10,n/30. If the customer pays within the discount period and takes the discount, XYZ will receive ______. A. $3,500 B. $100 C. $4,900 D. $5,000

C

Inventory began was $30,000. During the period the company purchased $61,000 of merchandise. At the end of the period, inventory was $22,000. If the gross profit percentage was 40%, what was sales revenue? Multiple choice question. $75,000 $18,400 $115,000 $46,000

C cost of goods sold = 69,000 since gross profit percentage is 40 percent, cost of goods sold is 60 percent 69,000 divided by 0.6 equals 115,000

XYZ's journal entry to record the return of merchandise previously purchased on account by XYZ was recorded by debiting Inventory and crediting Accounts Payable. As a result of this entry, ______. (Select all that apply.) A. stockholders' equity will be understated B. liabilities will be understated C. assets will be overstated D. stockholders' equity will be overstated E. assets will be understated F. liabilities will be overstated

C and F

Any costs incurred to get the merchandise into a condition and location ready for sale should be debited to ______. A. Cost of Goods Sold and Freight-in Expense B. Cost of Goods Sold C. Inventory and Freight-in Expense D. Inventory

D

Beginning inventory was $5,000. During the month, the company purchased an additional $25,000 of inventory. At the end of the month, ending inventory was $10,000. Cost of Goods sold equals ______. Multiple choice question. A. $5,000 B. $0 C. $50,000 D. $20,000

D

FOB ______ is the term used when ownership of the goods transfers to a buyer when the goods arrive at the buyer's place of business. Multiple choice question. A. perpetual B. shipping point C. periodic D. destination E. on account

D

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 which month(s) should the service contract be recognized as revenue? A. $20,000 in October B. $20,000 in November C. $20,000 in February D. $5,000 in each month from November to February

D

Sales Returns & Allowances is a ______ account and is ______ when goods are returned by customers for a refund. A. contra-asset; debited B. contra-revenue; credited C. contra-asset; credited D. contra-revenue; debited E. revenue; credited F. liability; credited

D

Why is inventory reported as a current asset? A. Inventory is reported as a current asset because it has been sold. B. Inventory is a non-current asset and is not available to meet current obligations. C. Inventory is not reported as a current asset. D. Inventory is reported as a current asset because it will be converted into cash within a year of the balance sheet date.

D

In a perpetual system, the entry to record the sale of merchandise to a customer on account would include a ______. (Check all that apply.) A. credit to Purchases B. debit to Purchases C. debit to Inventory D. debit to Cost of Goods Sold E. credit to Inventory F. credit to Cost of Goods Sold

D and E

The journal entry to record the payment for merchandise previously purchased on account includes a ______. (Select all that apply.) A. debit to Inventory B. debit to Accounts Receivable C. credit to Accounts Receivable D. credit to Cash E. debit to Accounts Payable F. credit to Accounts Payable

D and E

Using a perpetual inventory system, the entry to record the return of goods you previously purchased on account includes a ______. (Check all that apply and answer from the viewpoint of the buyer.) A. credit to Cash B. credit to Accounts Receivable C. debit to Purchase Returns D. credit to Inventory E. debit to Accounts Payable

D and E

Bottom, Inc. paid an invoice for $1,000, with discount terms of 1/7, n/30, within the discount period. The net amount paid was ______. Multiple choice question. A. $1,010 B. $1,000 C. $999 D. $900 E. $990

E

True or false: Gross Profit is a stockholders' equity account and is credited when goods are delivered to customers.

False; gross profit is a subtotal, not an account, found on the income statement

place the3 income statement line items in the proper order from the top to bottom Gross profit Cost of goods sold Sales revenue, net Sales revenue, gross Sales returns, allowances and discounts

Sales revenue, gross sales returns, allowances and discounts sales revenue, net cost of goods sold Gross profit

Match the type of company with the appropriate description Service company Retailers Wholesaler Manufacturing company A. buys goods and sells them directly to individuals B. Buys goods and sells them to other companies that will then sell them to individuals C. Will typically not have inventory on its balance sheet or Cost of Goods Sold on its income statement D. Makes the finished goods

Service company - C Retailers - A Wholesaler - B Manufacturing company - D

True or false: In a periodic inventory system, Cost of Goods Sold is recorded at the end of the accounting period.

True

______ is classified as a ___ asset and reports the amount of merchandise available to sell

goods available for sale; current

What do merchandising companies sell?

goods that have been obtained from a supplier

______ Sales on an income statement equals Sales Revenue (gross) minus Sales Returns and Allowances minus Sales ______. (Enter one word per blank.)

net; discount

What do service companies sell?

services rather than physical goods

What do wholesalers sell?

they sell their inventory to retail business.