ACCT EXAM 2
Ending Merchandise Inventory equation
number of units on hand x unit cost
Net Cost of Inventory Purchased Equation
purchase cost of inventory - purchase returns and allowances - purchase discounts + freight in
FOB shipping point
the buyer takes ownership to the goods after the goods leave the seller's place of business
A current ratio that has increased from the prior period indicates an improvement in the company's ability to pay its current debts. True or False?
true
A wholesaler is a merchandiser who buys goods from a manufacturer and then sells the goods to retailers. True or False?
true
A worksheet can be used to help prepare the financial statements. True or false?
true
An invoice is also known as a bill. true or false?
true
Businesses strive to sell merchandise inventory quickly because the merchandise inventory generates no profit until it is sold. True or False?
true
Freight charges to ship goods to customers is recorded as a debit to Delivery Expense. True or False?
true
Given the same purchase and sales data, and assuming the cost of inventory is rising, the costing methods for inventory will result in different amounts for cost of goods sold. True or False?
true
Inventory turnover measures the number of times a company sells its average level of merchandise inventory during a period. True or False?
true
Merchandise inventory is included in a merchandising company's current assets. true or false?
true
The Depreciation Expense account is a temporary account. true or false?
true
The consistency principle states that a business should use the same accounting methods and procedures from period to period. True or False?
true
The loss of inventory that occurs because of theft, damage, and errors is referred to as inventory shrinkage. True or False?
true
The post−closing trial balance shows the updated Owner, Capital balance True or false?
true
The steps of the accounting cycle are followed throughout the accounting period. True or False?
true
in the worksheet, the adjusted balance of the Service Revenue account appears in the credit column of the income statement. true or false?
true
the accounts receivable account is a permanent account true or false?
true
the salaries payable account is a permanent account true or false?
true
Cost of Goods Sold Equation
# of units sold x unit cost
Average Merchandise Inventory
(Beginning Inventory + Ending Inventory) / 2
Order of financial statement preparation
1. income statement 2. statement of owners equity 3. balance sheet
Days' Sales in Inventory Ratio
365/inventory turnover
Consistency Principle
A business should use the same accounting methods and procedures from period to period.
merchandiser
A business that sells merchandise, or goods, to customers.
wholesaler
A type of merchandiser that buys goods from manufacturers and then sells them to retailers
Which of the following would be considered the weakest current ratio? A. 0.35 B. 1.25 C. 1.00 D. 2.50
A. 0.35
Assume Juniper Natural DyesJuniper Natural Dyes made Net Sales Revenue of $ 90 comma 000$90,000 and Cost of Goods Sold totaled $ 58 comma 000$58,000. What was Juniper Natural Dyes'Juniper Natural Dyes's gross profit percentage for this period? (Round your answer to the nearest whole percent.) A. 36% B. 3.4 times C. 64% D. 17%
A. 36%
Which of the following accounts would be closed at the end of the year using the perpetual inventory system? A. Cost of Goods Sold B. Merchandise Inventory C. Accounts Receivable D. Accounts Payable
A. Cost of Goods Sold
Suppose Dave's Discount's Merchandise Inventory account showed a balance of $8,000 before the year-end adjustments. The physical count of goods on hand totaled $7,400. Dave uses a perpetual inventory system. To adjust the accounts, which entry would the company make? A. Cost of Goods Sold Merchandise Inventory B. Merchandise Inventory Accounts Receivable C. Accounts Payable Merchandise Inventory D. Merchandise Inventory Cost of Goods Sold
A. Cost of Goods Sold Merchandise Inventory
Which of the following are NOT included in a post-closing trial balance? A. Revenues and expenses B. Assets and liabilities C. Owner, Capital and assets D. Owner, Capital and liabilities
A. Revenues and expenses
he ending merchandise inventory for the current year is overstated by $ 20 comma 000$20,000. What effect will this error have on the following year's net income? A. The net income will be understated by $20,000. B. The net income will be overstated by $20,000. C. The net income will be overstated by $40,000. D. The net income will be understated by $40,000.
A. The net income will be understated by $20,000.
The two main inventory accounting systems are the A. perpetual and periodic. B. purchase and sale. C. returns and allowances. D. cash and accrual.
A. perpetual and periodic.
A company made net sales revenue of $ 550 comma 000$550,000, and cost of goods sold totaled $ 192 comma 500$192,500. Calculate its gross profit percentage. A.325% B. 65% C. 125% D. 35%
B. 65%
The process by which companies produce their financial statements for a specific period is called the ________. A. closing process B. accounting cycle C. operating cycle D. opening process
B. accounting cycle
Which of the following states that a company must perform strictly proper accounting only for items that are significant to the business's financial statements? A. consistency principle B. materiality concept C. disclosure principle D. conservatism
B. materiality concept
Which of the following is not included in a perpetual inventory record? A. cost per unit B. unit selling price C. identification of the inventory item D. quantity on hand
B. unit selling price
JC ManufacturingJC Manufacturing purchased inventory for $ 5 comma 300$5,300 and also paid a $ 260$260 freight bill. JC ManufacturingJC Manufacturing returned 4545% of the goods to the seller and later took a 22% purchase discount. Assume JC ManufacturingJC Manufacturing uses a perpetual inventory system. What is JC ManufacturingJC Manufacturing's final cost of the inventory that it kept? (Round your answer to the nearest whole number.) A. $2,997 B. $2,337 C. $3,117 D. $2,857
C. $3,117
The Merchandise Inventory account of a company shows a balance of $50,000 but a physical count of inventory shows $41,000 Which of the following entries is required to record the shrinkage? (Assume a perpetual inventory system.) A. Cash Merchandise Inventory B. Merchandise Inventory Cost of Goods Sold C. Cost of Goods Sold Merchandise Inventory D. Cost of Goods Sold Shrinkage Expense
C. Cost of Goods Sold Merchandise Inventory
A company that uses the perpetual inventory system purchased 500 pallets of industrial soap for $9,000 and paid $780 for the freight-in. The company sold the whole lot to a supermarket chain for $12,000 on account. The company uses the specific-identification method of inventory costing. Which of the following entries correctly records the cost of goods sold? A. Cost of Goods Sold 9000 Merchandise Inventory 9000 B. Merchandise Inventory 9780 Cost of Goods Sold 9780 C. Cost of Goods Sold 9780 Merchandise Inventory 9780 D. Cost of Goods Sold 9000 Sales Revenue 9000
C. Cost of Goods Sold 9780 Merchandise Inventory 9780
The journal entry for the purchase of inventory on account using the perpetual inventory system is A. Merchandise Inventory Accounts Receivable B. Accounts Payable Merchandise Inventory C. Merchandise Inventory Accounts Payable D. Merchandise Inventory Cash
C. Merchandise Inventory Accounts Payable
Which of the following is shown on a multi-step income statement but not on a single-step income statement? A. net income B. cost of goods sold C. gross profit D. net sales revenue
C. gross profit
Which of the following inventory costing methods yields the lowest net income during a period of rising inventory costs? A. first-in, first-out B. specific identification C. last-in, first-out D. weighted-average
C. last-in, first-out
Which of the following statements concerning the worksheet is correct? A. A completed worksheet is a substitute for the financial statements. B. Section 5 (Income Statement) and Section 6 (Balance Sheet) are optional. C. When a worksheet is used, there is no need to make journal entries. D. A worksheet consists of seven sections.
D. A worksheet consists of seven sections.
Which account does a merchandiser use that a service company does not use? A. Cost of Goods Sold B. Merchandise Inventory C. Sales Revenue D. All of the above
D. All of the above
What is the order of the subtotals that appear on a multi-step income statement? A. Gross Profit, Operating Income, Net Income, Total Other Income and Expenses B. Operating Income, Gross Profit, Net Income, Total Other Income and Expenses C. Total Other Income and Expenses, Operating Income, Gross Profit, Net Income D. Gross Profit, Operating Income, Total Other Income and Expenses, Net Income
D. Gross Profit, Operating Income, Total Other Income and Expenses, Net Income
Which of the following statements is true of the accounting cycle? A. It involves preparation of adjusting entries after the closing entries. B. It ignores the beginning balances of accounts. C. It takes place only at the end of an accounting period. D. It is a process by which financial statements for a period are produced.
D. It is a process by which financial statements for a period are produced.
The Interest Expense in the worksheet's unadjusted trial balance column is $1,000. Interest Expense in the income statement column is $12,000. Which of the following entries would have caused this difference? A. a $11,000 credit to Interest Expense in the worksheet's adjustments column B. a $12,000 credit to Interest Expense in the worksheet's adjustments column C. a $12,000 credit to Interest Payable in the worksheet's adjustments column D. a $11,000 debit to Interest Expense in the worksheet's adjustments column
D. a $11,000 debit to Interest Expense in the worksheet's adjustments column
Under which of the following inventory costing methods is the ending inventory based on the costs of the most recent purchases? A. weighted-average B. last-in, first-out C. specific identification D. first-in, first-out
D. first-in, first-out
Inventory turnover measures ________. A. how rapidly merchandise inventory is purchased B. the days' sales in inventory ratio C. the time period for inventory to become obsolete D. how rapidly merchandise inventory is sold
D. how rapidly merchandise inventory is sold
what is the formula to calculate inventory turnover
Inventory turnover = Cost of goods sold / Average merchandise inventory
freight in
The transportation cost to ship goods into the purchaser's warehouse
freight out
The transportation cost to ship goods out of the seller's warehouse
weighted average equation
Weighted Average= Cost of Goods Available for Sale / Total Units Available for Sale
conservatism
a business should report the least favorable figures in the financial statements when two or more possible options are presented
Disclosure Principle
a businesses financial statements must report enough information for outsiders to make knowledgeable decisions about the company
Materiality Concept
a company must perform strictly proper accounting only for items that are significant to the business's financial situation
Ending inventory for the current accounting period is overstated by $2,700. What effect will this error have on Cost of Goods Sold and Net Income for the current accounting period? a. COGS- understated Net income- overstated b. COGS- overstated Net income- overstated c. COGS- understated Net income- understated d. COGS- overstated Net income- understated
a. COGS- understated Net income- overstated
Austin SoundAustin Sound sold inventory for $300,000, terms 22/10, n/30. Cost of goods sold was $152,000. How much sales revenue will Austin SoundAustin Sound report from the sale? (Assume the company records sales at the net amount.) a. $152,000 b. 294,000 c. $148,960 d. $300,000
b. 294,000
The financial statements are prepared from the ________. A. chart of accounts B. adjusted trial balance C. statement of owner's equity D. unadjusted trial balance
b. adjusted trial balance
FOB destination
buyer takes ownership at the delivery destination
retailer
buys merchandise from manufacturers or a wholesaler and then sells the goods to consumers
what financial statement is prepared last? a. income statement b. statement of owners equity c. balance sheet d. the financial statements can be prepared in any order
c. balance sheet
inventory turnover ratio
cost of goods sold/average inventory
An overstatement of ending merchandise inventory in the current period results in an understatement of net income in the current period. True or False?
false
Credit terms of a merchandising company are 1/15, net 40. This means that the buyer can receive a discount of 1% if the invoice is paid within 40 days of the invoice date. True or False?
false
Each inventory costing method matches the flow of inventory costs in a business and is used to determine ending inventory and cost of goods sold. True or False?
false
In a period of rising costs, the last-in, first-out (LIFO) method results in a lower cost of goods sold and a higher net income than the first-in, first-out (FIFO) method. True or False?
false
On the income statement, a service company reports the cost of merchandise inventory that has been sold to customers. true or false?
false
a net loss from the balance sheet decreases owner, capital true or false
false
the balance sheet is the first financial statement that i prepared at the end of the period. true or false?
false
the operating cycle is the time span required for a business to repay its long- term liabilities true or false?
false
Operating Income Equation
gross profit - operating expenses
Gross Profit Percentage equation
gross profit/net sales revenue
