ACG Chpt 6 & 7

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 of $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 ____.

$1090

As inventory quality increases, its cost usually ___.

increase

Match the type of company with an example

Retailer - Wal-Mart, Costco Manufacturer - Mattel, Goodyear

Beyer Company bought inventory from Sellar Company, FOB destination. On december 31, the last day of the accounting year, the goods were on a truck owned by Common carrier, inc., in transit between Beyer and Sellar. Which company should include these goods in its December 31 inventory?

Sellar

Which inventory method is typically used when accounting for expensive and unique inventory items?

Specific Identification

Goods available for sale will ____ when sold.

become cost of goods sold on the income statement

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

Delta Diamonds had 5 diamonds available for sale this year: 1 purchased June 1 for $500, 2 purchased July 9 for $550, and 2 September 23 for $600 each. On December 24, it sold 1 of the diamonds that was purchased on July 9. Using FIFO, its cost of goods sold is ____.

500

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?

52%

Delta Diamonds had 5 one-carat diamonds available for sale this year: 1 purchased June 1 for $500, 2 purchased July 9 for $550, and 2 September 23 for $600 each. On December 24, it sold 1 of the diamonds that was purchased on July 9. Using perpetual specific identification, its cost of goods sold is ____.

550

Delta Diamonds had 5 diamonds available for sale this year: 1 purchased June 1 for $500, 2 purchased July 9 for $550, and 2 September 23 for $600 each. On December 24, it sold 1 of the diamonds that was purchased on July 9. Using periodic weighted average cost, its cost of goods sold is ____.

560

Which of the following events might cause inventory prices to decrease?

an economic recession increased competition the merchandise goes out of style or becomes obsolete Technological improvements in the industry

The assumption that a company makes about its inventory cost flow has ____

an effect on the company's balance sheet. an effect on the company's income statement.

On may 1, beginning inventory consists of 10 items at a cost of $10 each. On may 3, 10 items are purchased at $12 each. On may 15, 10 items were purchased at $14 each. Using perpetual FIFO, the cost of goods sold for the month ended May 31 equals ___.

$124

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?

$360,000

Create an income statement in the proper order from the top to bottom.

1. Sales Revenue 2. Sales Returns, Allowances and Discounts 3. Net Sales 4. Cost of Goods Sold 5. Gross Profit

Blog Inc., has net sales of $50,000, cost of goods sold of $30,000 and selling expenses of $5,000. its gross profit is ____.

20,000

The journal entry to record the payment for merchandise previously purchased on account includes a debt to ____ and a credit to ____

Accounts payable; Cash

which of the following would be considered inventory for a merchandiser?

Acquired goods for resale

Alpha Company bought inventory from Omega Company, FOB shipping point. On December 31, the last day of the accounting year, the goods were on a truck owned by Theta, Inc., exactly half-way between Alpha and Omega. Which company should included these goods in its December 31 inventory?

Alpha

The seller of inventory pays for shipping if the shipping terms are FOB ____

Destination

Assuming rising inventory prices, rank which inventory methods results in their higher ending inventory value. List, from top to bottom, in order of highest ending inventory to lowest ending inventory value.

FIFO Weighted Average LIFO

Which of the following would be found on the debt side of the inventory T-account?

Freight-In Purchases Beginning balance

Merchandisers record revenue when they ____?

Fulfill their performance obligations by transferring control of the foods to customers

Who does FOB shipping point mean?

Goods are owned by the buyer when they leave the seller's place of business

Which of the following is merchandise inventory?

Goods held for sale in the normal course of business

if cost of acquiring inventory is rising. LIFO will result in which of the following compared to FIFO?

Gross profit will be lower cost of goods sold will be higher income tax expense will be lower

Inventory costing methods allowed by GAAP include: 1) Specific ____; 2) ____ average; 3)Last in, ____ out; and 4) First in, ____ out.

Identification weighted first first

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

Inventory

____ companies sell goods that have obtained from other companies.

Merchandising

Which of the following would be found on the credit side of the inventory T-account?

Purchase discounts Purchase Returns

Who decides which of the many inventory accounting method a company should use?

The company's management

The journal entry to record the payment for merchandise previously purchased on account includes a ____.

credit cash debt accounts payable

Inventory is reported as a(n) ____

current asset on the balance sheet

to ensure the accuracy of inventory accounted for using a perpetual system, physical counts ____.

detect bookkeeping errors detect shrinkage detect theft

which of the following is merchandise inventory?

goods held for sale in the normal course of business

FIFO, an inventory costing method, actually describes how to calculate the cost of ____.

goods sold

Goods in transit are ____.

inventory items being transported from a seller to a buyer.

Gross profit percentage is calculated as ____.

net sales minus cost of goods sold, then divide by Net sales, and multiply by 100

FIFO uses the ____ cost for costs of goods sold on the income statement and the ____ cost for inventory on the balance sheet.

oldest, newest

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 would be considered merchandise inventory?

purchased finished goods

the cost of carrying inventory include the costs of ____.

theft storage spoilage obsolescence

In a perpetual system, the entry to record a purchase of merchandise on account includes a ____.

Debt inventory Credit to Accounts Payable

Which of the following are reported on the income statement?

Gross Profit Cost of Goods Sold Sales Revenue

If a company assumes that its inventory costs flow out in the opposite order from which the goods were purchased, it uses ____ to value its inventory.

LIFO

Which inventory costing method assumes that inventory costs flow out in the opposite order from which the goods were purchased?

LIFO

Which inventory costing methods are based on assumptions that accountants make about the flow of inventory costs?

LIFO and FIFO

Bijoux Company uses a perpetual inventory system. Its bookkeeper property 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,

Net income and Total assets will be too high

Under the ____ inventory system, inventory records are updated only at the end of the accounting period.

Periodic

What are the two stages of accounting for a purchase discount using the gross method?

The purchase is first recorded at full cost. The inventory account is later reduced if payment is made within the discount period.

What inventory accounts would one expect to see in the accounting records of a company that makes furniture?

Work in progress inventory Raw materials inventory Finished goods inventory

FIFO, LIFO, and weighted average inventory costing methods are based on ____.

assumptions that accountants make about the flow of inventory costs

The inventory balance on the balance sheet reports the ____.

cost of goods available for sale.

Cost of Goods sold on the income statement reports the ____.

cost times the quantity of goods sold during the period.

Inventory is reported as a(n) ____.

current asset on the balance sheet

Assuming sales remain unchanged, if cost of goods sold increases the gross profit ____.

decreases

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 ____

$4,900

XYZ's journal entry to record the return of merchandise previously purchased on account by ZYX was recorded by debiting inventory and crediting Accounts Payable. As a result of this entry, ____.

Assets will be overstated Liabilities will be overstated.

Using a perpetual inventory system, when a company records a sale of merchandise, it must also record ____.

A decrease in inventory Cost of goods sold, which will be reported on the income statement

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

In a periodic system, for cost of goods sold to be updated, which of the following must occur?

Take a physical count of inventory compute cost of goods sold sold by subtracting ending inventory from goods available for sale

In which of these situations would a merchandiser record revenue?

The obligation has been fulfilled and control of the goods has been transferred to the customer. Goods were delivered FOB shipping point but have not yet arriving at the buyer's place of business

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

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

Which of the following statements are true?

Using a different inventory accounting method leads to reporting a different amount for cost of goods sold. Managers can choose the method of accounting for inventory cost that best fits their business.

If a new company calculates the average cost of its inventory by adding together the total cost of all purchases and the dividing it by the number of units purchases during the period, it is using the weighted ____ cost method.

average

the goals of inventory managers include ____

keeping the costs of buying and storing inventory as low as possible making sure that inventory quality meets customer expectations having enough inventory on hand to meet customer demand

mountain made started the month with 3 quilts in its beginning inventory that cost $200. During the month, mountain made purchased 7 additional quilts for $210 each. At the end of the month, Mountain Made counted its inventory and found that 2 quilts remained unsold. If Mountain Made uses periodic weighted average cost, its cost of goods sold for the month is ____.

1656

Purchase transactions affect the ____

balance sheet and not the income statement

Berkley Company had beginning inventory of $4,000 and purchases of $20,000. If half of its inventory was sold, Berkley's goods available for sale will ____.

be split between cost of goods sold and ending inventory

Acme, inc. had cost of goods sold of $2,000. If beginning inventory was $2,100 and ending inventory was $500, Acme's purchases must have been $____.

400

Under the ____ inventory system, the inventory account is updated every time inventory is bought, sold, or returned.

Perpetual

Alpha Company bought 75 units of inventory for $4 each and 25 units of inventory for $5 each. Alpha's weighted average cost per unit is ____.

$4.25

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

Compare one company with another Make comparisons over time

On may 1, beginning inventory consists of 10 items at a cost of $10 each. On may 3, 10 items are purchased at $12 each. On may 8, 12 items are sold. On may 15, 10 items are purchased at $14 each. Using the perpetual weighted average cost, cost of goods sold for the month ended may 31 is ____.

132

On may 1, beginning inventory consists of 10 items at a cost of $10 each. On may 3, 10 items are purchased a $12 each. On may 8, 12 items are sold. On may 15, 10 items are purchased at $14 each. Using perpetual LIFO, ending inventory at may 31 equals ____.

220

Ace electronics had cost of goods sold of $20,000. If purchases of inventory during were $23,000 and ending inventory was $6,000, Ace's beginning inventory must have been ____.

3,000

Acme, Inc. had cost of goods sold of $2,000. If beginning was $2,100 and ending inventory was $500, Acme's purchases must have been $____

400

Boopsie Agin, the company's bookkeeper, recorded the purchase of merchandise on account with a debt to cost of goods sold and a credit to cash. As a result, ____.

Liabilities are understated Stockholders' equity is understated Assets are understated

Cost of goods sold equals beginning inventory plus ____ minus ending inventory

Purchases

Delta Diamonds had 5 diamonds available for sale this year: 1 purchased June 1 for $500, 2 purchased July 9 for $550, and 2 September 23 for $600 each. On December 24, it sold 1 of the diamonds that was purchased on July 9. Using LIFO, its cost of goods sold is ____.

600

x Company, which uses a perpetual inventory system, sold $2,000 of merchandise on account with credit terms of 2,10, n/30. The journal entry to record the initial sale gross of any discounts will include ____.

A credit of Sales Revenue of $2,000 a debit to Accounts Receivable of $2,000

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

Inventory

The weighted average cost method uses the weighted average cost to calculate the value of ____.

Inventory Cost of Goods Sold

the purchase of merchandise on account is recorded with a debt to ____ and a credit to ____.

Inventory ; Accounts payable