ACG 2021 Chapter 5

Beginning inventory is $12,000; purchases are $34,000; sales revenue are $60,000; and cost of goods sold is $31,000. How much is ending inventory?

$15,000

Arbor Corporation reports the following: Sales revenue $184,000; ending inventory $16,600; beginning inventory $17,200; purchases $60,400; purchases discounts $3,000; purchase returns and allowances $1,100; freight-in $600; freight-out $900. Calculate the company's cost of goods sold.

$57,500 Cost of Goods Sold = Beginning Inventory + Purchases - Purchases Discounts - Purchases Returns and Allowances + Freight-In - Ending Inventory

Heflin Corporation has the following: Sales revenue, $430,000 Sales returns and allowances, $20,000 Sales discounts, $10,000 Cost of goods sold, $310,000 Operating expenses, $60,000 Other expenses, $10,000 How much is its gross profit?

$90,000

A company has the following balances: Sales revenue $312,000; Sales Returns and Allowances $2,000; Sales Discounts $4,000; Cost of Goods Sold $184,000; Operating Expenses $79,000; Other expenses $5,000. How much is the profit margin?

12.4% Profit Margin = Net Income/Net Sales

Helix Company purchased merchandise with an invoice price of $1,000 and credit terms of 1/10, n/30. Assuming a 360 day year, what is the implied annual interest rate inherent in the credit terms?

18% The company saves $10 (i.e., $1,000 x 1%) if it pays no later than 10 days after the sale Interest = Principal x Interest rate x Time $10 = $1,000 x Interest rate x (30-10)/360

What type of account is Sales Returns and Allowances?

Contra revenue account

Marsh, Inc. paid for freight costs on merchandise it shipped to a customer. In what account will Marsh record this cost in a perpetual inventory system?

Freight-Out

Which of the following would be classified as an operating expense on a multi-step income statement?

Freight-Out

On what amount is a sales discount based?

Invoice price less returns and allowances

Which of the following determines the quality of earnings ratio?

Net cash provided by operating activities divided by net income

T or F: A company which uses a perpetual inventory system needs two journal entries when it sells merchandise

True

If a company is using aggressive accounting techniques in order to accelerate income recognition then its quality of earnings ratio is _____________.

significantly less than 1

Vetter Corporation reports the following: Sales revenue, $450,000; sales discounts, $10,000; operating expenses, $35,000; cost of goods sold, $320,000; income tax expense, $10,000. How much is its gross profit and income from operations, respectively?

$120,000 and $85,000

Heflin Corporation has the following: Sales revenue, $470,000 Sales returns and allowances, $20,000 Cost of goods sold, $320,000 Operating expenses, $100,000 Other expenses, $10,000 How much is its gross profit?

$130,000 Net Sales = Sales - Sales Returns and Allowances - Sales Discounts Gross profit = Net sales- Cost of goods sold

If beginning inventory is $60,000, cost of goods purchased is $380,000, sales revenue is $800,000 and ending inventory is $50,000, how much is cost of goods sold under a periodic system?

$390,000

Net income is $15,000, operating expenses are $20,000, and net sales total $75,000. How much is cost of goods sold?

$40,000 Net sales - gross profit = cost of goods sold

If beginning inventory is $80,000, cost of goods purchased is $400,000, sales revenue is $900,000 and ending inventory is $60,000, how much is cost of goods sold under a periodic system?

$420,000

A credit sale of $750 is made on June 13, terms 2/10, n/30. It is followed by a return of $50 on June 16. If payment is made on June 23, how much cash is received?

$686

Sales revenue totals $10,000. Sales returns and allowances are $500 and sales discounts are $1,000. The seller also pays $100 to ship the merchandise to the buyer. How much is net sales?

$8,500 Net sales = Sales Revenue - Sales Returns and Allowances - Sales Discounts

A company has the following accounts balances: Sales revenue $100,000; Sales Returns and Allowances $20,000; Sales Discounts $5,000; Cost of Goods Sold $40,000; and Net Income $7,000. How much is the gross profit rate?

46.7% Gross Profit Rate = Gross Profit/Net Sales

Helix Company purchased merchandise with an invoice price of $2,000 and credit terms of 3/10, n/30. Assuming a 360 day year, what is the implied annual interest rate inherent in the credit terms?

54%

Which one of the following statements is correct? a) A company which uses a perpetual inventory system needs only one journal entry when it sells merchandise b) A company which uses a perpetual inventory system debits inventory and credits cost of goods sold when it sells merchandise c) None of the answer choices are correct d) A company which uses a perpetual inventory system needs two journal entries when it sells merchandise e) A company which uses a perpetual inventory system does not record any journal entries when it sells merchandise

A company which uses a perpetual inventory system needs two journal entries when it sells merchandise

Jackson Company uses a perpetual inventory system. On May 1, it purchased $10,000 of merchandise and it must pay the $250 shipping charges. The credit terms for the merchandise were 2/10, n/30. The company paid for both the merchandise and the shipping charges nine days after their invoice dates. Which of the following is part of the required journal entry when Jackson pays the shipping charges of $250?

A debit to Inventory for $250

Which of the following will be shown on the income statement for a merchandising company? a) Cost of goods sold b) Revenue c) None of these d) Gross profit e) All of these

All of these

Which of the following would affect the gross profit rate if sales remain constant?

An increase in cost of goods sold

Which factor would not affect the gross profit rate? a) An increase in the cost of heating the store b) An increase in the use of "discount pricing" to sell merchandise c) An increase in the sale of luxury items d) An increase in the price of inventory items e) None of these would affect the gross profit rate

An increase in the cost of heating the store

In a periodic inventory system, when is the cost of the merchandise sold determined?

At the end of the period

Which of the following is not a component or step of the operating cycle for a service company?

Buy inventory to be resold to customers

Which of the following will result in negative gross profits?

Cost of goods sold exceeding sales revenue

Starlight Corporation, which uses a perpetual inventory system, purchased $3,000 of merchandise on August 2 on account. Credit terms were 1/10, n/30. It returned $250 of the merchandise on August 4. Which of the following is one effect when Starlight pays its bill on August 12?

Credit Inventory for $27.50

Which statement is true when goods are purchased for resale by a company using a periodic inventory system?

Purchases on account are debited to the Purchases account

The operating cycle of a merchandising company has an extra asset account compared to a service company. What is that extra asset account?

Inventory

Indicate which one of the following would not likely appear on both a multi-step income statement and a single-step income statement.

Gross profit

Which of the following would not be classified as an operating expense on a multi-step income statement? a) Advertising expense B) Freight-out c) Salaries and wages expense d) Interest expense e) Depreciation expense

Interest Expense

Which is true about a wholesaler? a) It conducts small sales for consumers on a nonrecurring basis b) It sells to another business that will sell to the customer rather than sell directly to the consumer c) It sells only to manufacturing companies d) It is a company that sells directly to consumers e) It is the same as a retailer

It sells to another business that will sell to the customer rather than sell directly to the customer

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

Its revenue primarily comes from the sale of merchandise

Which of the following describes how to compute the gross profit rate?

Net sales minus cost of goods sold, divided by net sales

On December 1, Marsh, Inc. sold inventory for $5,500 on account with terms 2/10 n/30. The customer pays nine days later. Marsh uses a periodic inventory system. What amount will Marsh record in its inventory account on December 1?

No entry will be made

Under what inventory system is cost of goods sold determined at the end of an accounting period?

Periodic inventory system

Under what inventory system is cost of goods sold determined after each sale?

Perpetual inventory system

Which inventory system will likely be used by a company with merchandise that has a high per unit value?

Perpetual inventory system

Which of the following will not be shown on the income statement for a merchandising company? a) Cost of goods sold b) Sales discounts c) Retained earnings d) Gross profit e) Revenue

Retained earnings

How is gross profit measured?

Sales revenue minus cost of goods sold

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) The company began paying higher prices to suppliers without passing these costs on to customers b) The company began selling products with a higher markup c) The company offered more sales discounts to customers in order to sell as many units of inventory as the prior year d) All of the above would explain the decline in Bolton's gross profit rate e) The company's average margin between selling price and inventory cost decreased

The company began selling products with a higher markup

A company's gross profit rate increased in the current year relative to the prior year. Which of the following would be a possible explanation for this change?

The company's global sourcing efforts at the beginning of the current year resulted in a lower cost of merchandise sold

A company's gross profit rate increased in the current year relative to the prior year. Which of the following would be a possible explanation for this change? a) The company increased its product markdowns and discounts offered to customers in the current year b) The company's new profit lines with lower margins became a larger component of their sales c) The company's average margin between the selling price and the inventory cost decreased over this two-year period d) The company's global sourcing efforts at the beginning of the current year resulted in a lower cost of merchandise sold e) None of the above would explain the increase in gross profit rate

The company's global sourcing efforts at the beginning of the current year resulted in a lower cost of merchandise sold

T or F: A perpetual inventory system provides better control over inventories than does a periodic inventory system

True

Wilma's Foods recorded the following events involving a recent purchase of inventory: Received goods for $25,000, terms 2/10, n/30. Returned $800 of the shipment for credit. Paid $200 freight on the shipment. Paid the invoice within the discount period. The company uses the perpetual inventory system. As a result of these events, the company's inventory

increased by $23,916