Accounting Financial Chapter 6

Goods available for sale equals

Beginning inventory + Purchases + Freight-In - Purchase Returns and Allowances - Purchase Discounts

Inventory is reported as a(n) ______ on the:

current asset; balance sheet only

Sales discounts should appear in the financial statements as a(n) _____.

deduction from sales

Sales transactions affect the _____.

income statement and balance sheet

GRoss Profit equals

net sales - cost of goods sold

The ______ cycle is a series of activities that the company undertakes to generate sales and ultimately cash.

operating

Inventory consists of the purchase price ______.

plus freight-in

Which of the following is merchandise inventory?

goods held for sale in the normal course of business

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

there are product quality issues

The entry to record a sales return that results in the issuing of a gift card is recorded with a debit to sales revenue and a credit to _______ _______ and also a debit to _________ and a credit to Cost of Goods Sold.

deferred revenue inventory

An adjusting entry that debits sales revenue and a credit to refund liability as well as debits inventory-estimated for returns and credits cost of good sold is recording the ______.

estimated returns

Inventory shrinkage can be determined by comparing the _____.

Beginning inventory plus purchases minus cost of goods sold to the actual inventory balance from a physical count Information from the perpetual inventory system to the physical count

The adjustment to record inventory shrinkage will increase ______.

Costs of Goods Sold on the income statement

The journal entry to record the payment for merchandise previously purchased on account will cause stockholders' equity to _____. a. increase b. remain unchanged c. decrease

Remained unchanged

Inventory is reported as a(n) ______ on the _____.

current asset; balance sheet only

Net Sales on an income statement equals Sales Revenue ________.

minus sales returns, allowances and discounts

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? a. 52% b. 88% c. 10% d. 47%

(20,000 + 81,000 - 24,000 = 77,000) (160,000 - 77,000 / 160,000 = 52%)

Which inventory system records a change in the inventory account every time goods are bought, sold or returned?

Perpetual

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?

The customer received a damaged product and returned it.

In a perpetual inventory system, which of the following statements are true?

The purchaser should record freight-in as an asset, Inventory The seller should record freight-out as a selling expense

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 the period will _____.

be split between cost of goods sold and ending 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

In a perpetual inventory system, the journal entry to record the payment of cash for the shipping cost of purchased merchandise will cause _____.

one asset to increase and another asset to decrease

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 ______.

only in a perpetual system

A major drawback to the periodic inventory system is _____.

the amount of inventory on hand and sold is unavailable during the accounting period

If the purchaser of merchandise debited Inventory and credited Cash for transportation costs, ______.

the terms of the sale were FOB shipping point

Under a perpetual inventory system, the entry to record the return of goods you had previously purchased on account was recorded with a debit to Accounts Payable and a credit to Inventory. This entry is _____.

correct

The ____ method accounts for purchase discounts later when the payment is made and the _____ method accounts for purchase discounts at the time the goods are received.

gross; net

Goods Available for Sales will ______ when sold.

become Cost of Goods Sold on the income statement

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 _______.

Cash of $1,000 and a credit to Sales Revenue of $1,000; a debit of Cost of Goods Sold of $600 and a credit to Inventory of $600

Which line item would be found on a service firm's income sheet and not on a merchandiser's? Service Revenue, Cost of Goods, Sales Revenue, Inventory, Depreciation Expense, Supplies

Service Revenue

Bijoux Company has sales of $40,000, beginning inventory of $5,000, purchases of $25,000, and ending inventory of $7,000. The cost of goods sold is:

$23,000

Bijoux Company has sales of $40,000, beginning inventory of $5,000, purchases of $25,000, and ending inventory of $7,000. The goods available for sale for the period equals _____.

$30,000 Goods available for sale equals Beginning inventory plus Purchases

beginning inventory + purchases

= Goods Available for Sale

What does the gross profit percentage tell you?

A higher ratio means that more is available to cover operating expenses

The entry to record the revenue recognized from the service portion of a bundle sale that was collected in advance is recorded with a debit to ______ and a credit to _____.

Deferred Revenue; Service Revenue

Inventory consists of all ____.

costs needed to get the inventory ready for sale

The gross profit percentage is the ratio to watch if you are worried about increased competition. If the company lowers its prices to retain market share without lowering its cost of goods sold, its gross profit percentage will ____.

decrease

The Inventory account may be credited for _____.

purchase returns and allowances

Whether purchase discounts are recorded using the gross or net method, ultimately purchase discounts taken are _____.

reductions to inventory

Sales Revenue reports the _____.

sale price times the quantity of goods sold

If a seller sells its merchandise with the shipping terms FOB shipping point, its credits Revenue when the merchandise is ____.

shipped from the seller's place of business

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

shipping point

How should the seller of a bundle sale for $8,000 be recorded when the sale involves the delivery of a copier machine and a one-year service agreement? The seller must _____ and recognize the revenue _____.

split the 8,000 between the product and service contract; for the product when delivered and the service when performed

To determine cost of goods sold for the period requires _______.

subtracting ending inventory from the goods available to sell, which is the beginning inventory plus purchases

True or False: When a company sells different types of products, the income statement will report the Cost of Goods Sold for all of the products in one line item.

true

On May 3, Botit Inc. purchased merchandise on account for $1,000, FOB shipping point, with terms 1/10 n/30 from Cellar, Inc. On May 6, Botit received the merchandise, along with an invoice for $1,000. In addition, $100 in shipping costs was owed to We Deliver, Inc. On May 12, Botit paid all amounts owed, which amounted to _____.

$1,000 - $10 + $100 = $1,090

The gross profit percentage measures the percentage of profit earned on each dollar of sales before deducting all expenses other than cost of goods sold. This ratio is used for:

Make comparisons over time Compare one company with another

Which of the following items are netted against Sales Revenue arrive at Net Sales?

Sales Returns Sales Discounts Sales Allowances

Which line item would be found on a merchandiser's income sheet and not on a service firm's?

Sales Revenue Cost of Goods Sold

Which of these will require a credit to the inventory account in a perpetual inventory system?

Selling inventory on account Selling inventory for cash

Breyer Company bought inventory Solar Company, FOB destination. On December 31, the last day of the accounting year, the goods were on a truck owned by Common Carrier, Inc., and not expected to arrive until January 3. Which company should include these goods in its December 31 inventory?

Solar

Acme Enterprises, which uses a perpetual inventory system, recorded a debit to Sales Returns & Allowances and a credit to Account 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.

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 Sales & Returns Allowances and a credit to Accounts Receivable b. a debit to Sales Returns and Allowances and a credit to Accounts Receivable; and a debit to Inventory and a credit to Cost of Goods Sold c. a debit to Accounts receivable and a credit to Sales Returns & Allowances; and a debit to Cost of Goods Sold and a credit to Inventory 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

b. a debit to Sales Returns and Allowances and a credit to Accounts Receivable; and a debit to Inventory and a credit to Cost of Goods Sold

The recording of a company's purchase returns and purchase allowances are similar in that both may result in a(n) ______.

decrease in inventory decrease in accounts payable

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.

destination

Merchandisers record revenue when they

fulfill their performance obligations by transferring control of the goods to customers

The complexity that arises from a bundle sale of a product and service contract together for a single price is the seller _____.

fulfills its performance obligations at different times has to determine how to split the price

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

inventory