AC Chapter 6

Bijoux Company uses a perpetual inventory system. Its bookkeeper properly recorded a $5,000 sale on account, but forgot to record the related cost of the sale of $3,000. As a result of this error, ______

total assets will be too high net income will be too high

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?

$5,000 in each month from November to February

Gross profit equation

Sales rev-discounts, allowances, and returns-COGS

Using a perpetual inventory system, the entry to record the return of goods you previously purchased on account includes a ______.

credit to Inventory debit to Accounts Payable

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 debit to Sales Returns & Allowances and a credit to Cash; and a debit to Inventory and a credit to Cost of Goods Sold

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?

Breyer Company should include the $4,000 in its inventory.

A multistep income statement is useful to financial statement users because it ______.

-separates income statement items into meaningful components -separates cost of goods sold from other operating expenses, which allows the calculation of gross profit

Place the income statement line items in the proper order from the top to bottom.

1. Gross Sales rev 2. Sales returns, allowances and discounts 3. Net sales rev 4. Cost of Goods sold 5. Gross Profit

Put the 5-step revenue model for a bundle sale in its proper order by placing the 1st step at the top.

1. Identify the contract 2. Identify the seller's performance obligations 3. Determine the Transaction Price 4. Allocate the transaction price to each performance obligation in the bundle sale 5. Recognize revenue when (or as) each performance obligation is satisfied

Which of the following are found on the income statement of a merchandiser?

Cost of Goods Sold Gross Profit Sales Revenue

Acme Enterprises, which uses a perpetual inventory system, recorded a debit to Sales Returns & Allowances and a credit to Accounts Receivable. (No other accounts were affected.) What business event must have taken place?

The customer received a damaged product, but kept the product and asked for a reduction in the price.

Equation for goods available for sale

beginning inventory+purchases

Sales Returns & Allowances is a ______ account and is ______ when goods are returned by customers for a refund.

contra-revenue; debited

Sales Returns and Allowances are reported on the ______.

income statement

Net Sales on an income statement equals Sales Revenue ______.

minus Sales Returns, Allowances and Discounts

.....Sales on an income statement equals Sales Revenue (gross) minus Sales Returns and Allowances minus Sales.........

net discount

If sales returns and allowances are a large dollar amount relative to initial sales revenue, it may mean ______.

there are product quality issues

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

False

Equation for ending inventory(balance sheet)

Goods available for sale-COGS

Gross profit margin

Gross profit/net sales x 100%

In a perpetual inventory system, the return of merchandise XYZ recently purchased on account will have the following effects on XYZ's accounting equation.

Liabilities will decrease. Assets will decrease.

Which of the following items are netted against Sales Revenue to arrive at Net Sales (Sales Revenue to net sales)?

Sales Discounts Sales Returns Sales Allowances

The purchaser of inventory pays for shipping if the shipping terms are FOB ______.

Shipping Point