acg

Which of the following is not a component or step of the operating cycle for a service company? Perform services for customers All of these are steps of the operating cycle of a service company Receive cash payments from customers Buy inventory to be resold to customers Record an increase to accounts receivable when services are performed for customers on account

Buy inventory to be resold to customers

Bristol Inc. has net sales of $400,000, cost of goods sold of $300,000, and operating expenses of $20,000. What is its gross profit rate? Group of answer choices 50% 20% 33% 75% 25%

25

Helix Company purchased merchandise with an invoice price of $3,000 and credit terms of 2/10, n/40. Assuming a 360 day year, what is the implied annual interest rate inherent in the credit terms? Group of answer choices 4% 54% 36% 24% 18%

24

The company uses the periodic inventory system. Based on the information above compute cost of goods sold. Group of answer choices $292,600 $287,600 $255,600 $285,100 $295,100

287,600

Which of the following is false with regards to the flow of costs for a merchandising company? None of these are false. Goods that are not sold by the end of he accounting period represent ending inventory. All of these are false. As goods are sold, cost of goods sold decreases. Beginning inventory plus the cost of goods purchased is the cost of goods available for sale.

As goods are sold, cost of goods sold decreases.

If a purchaser uses a perpetual inventory system and pays the freight cost associated with acquiring its inventory, then the Group of answer choices Freight-Out account is increased by the freight costs. Purchases account is increased by the freight costs. Delivery Expense account is increased by the freight costs. Inventory account is not affected by the freight costs. Inventory account is increased by the freight costs.

Inventory account is increased by the freight costs.

Marsh Company uses the perpetual inventory system. Which of the following transactions neither increases nor decreases its inventory account? Marsh paid freight costs to ship goods from its supplier to Marsh. Marsh purchased of merchandise on account All of these transactions either increase or decrease Marsh's inventory account. Marsh paid freight costs to ship goods from Marsh to a customer. Marsh returned inventory to the supplier that Marsh has purchased for cash.

Marsh paid freight costs to ship goods from Marsh to a customer. In a perpetual inventory system, companies record increases to inventory when they buy it and when customers return it, and they record decreases to inventory when they sell it. Paying freight charges to acquire inventory is part of the cost of buying inventory. However, the entry to record the payment of freight costs to ship goods to a customer decrease cash and increase freight out (i.e., delivery expense); it does not affect the inventory account. Similarly, when a grants a customer an allowance by reducing the purchasing price it does not affect the inventory account because sales allowances increase the Sales Returns and Allowances account (debit it) and decreases accounts receivable (credit it).

Under perpetual system, cash freight costs incurred by the buyer for the transporting of goods is recored in what account?

c. inventory

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? Group of answer choices $440,000 $420,000 $470,000 $390,000 $410,000

420

Financial information for Edwards Incorporated is presented below: Operating expenses $ 45,000 Sales returns and allowances 14,000 Sales discounts 6,000 Sales revenue 160,000 Cost of goods sold 90,000 What is its gross profit? $90,000 $66,000 $60,000 $15,000 $50,000

50

Tommy's Market uses a perpetual inventory system to record the following events involving a recent purchase of inventory: i. On July 1, purchased merchandise for $50,000, terms 1/10, n/30. ii. On July 3, paid freight costs of $300 on merchandise purchased. iii. On July 6, returned $1,200 of merchandise to the supplier. iv. On July 9, paid the amount due to the supplier. As a result of these events, Tommy's Market Company's inventory increased by $48,609. increased by $48,601. increased by $49,100. increased by $48,312. increased by $48,612.

increased by $48,612.

Harwell Company purchased merchandise with an invoice price of $2,000 and credit terms of 2/10, n/30. Assuming a 360 day year, what is the implied annual interest rate inherent in the credit terms? 2% 33.33% 24% 12% 36%

36 Solution: The company buying merchandise can wait 10 days and still receive a 2% discount. Otherwise, it can wait an additional 20 days and pay the full invoice amount without being overdue. In other words, a 20-day difference produces 2% interest. An interest rate of 2% in 20 days is equivalent to an interest rate of 36% in 360 days (i.e., 2% x 360/20). Alternatively: Interest = Principal x Interest rate x Time $20 = $1,000 x Interest rate x (30-10)/360 Solving for the interest rate: Interest rate = [360/(30-10)] x $20/$1,000 = 0.36 (i.e., 36%)

Which of the following statements about inventory systems is correct? A periodic inventory system provides better control over inventories than does a perpetual inventory system. A perpetual inventory system provides better control over inventories than does a periodic inventory system. A perpetual inventory system computes cost of goods sold only at the end of the accounting period. None of these A periodic inventory system computes cost of goods sold each time a sale occurs.

A perpetual inventory system provides better control over inventories than does a periodic inventory system. Under periodic inventory, details about the cost of goods on hand is not available until the end of the accounting period. In contrast, perpetual inventory requires cost of goods sold to be recognized at the time of sale so it contains more accurate values of goods on hand at any time.

Which of the following would affect the gross profit rate if sales remain constant? All of these A decrease in insurance expense A decrease in depreciation expense An increase in advertising expense An increase in cost of goods sold

An increase in cost of goods sold Solution: Learning objective 6 Gross profit rate is computed by dividing gross profit by net sales and any change in sales, sales returns in allowances, sales discounts, or the cost of goods sold will affect the ratio.

Marsh Company uses the perpetual inventory system. Which of the following transactions neither increases nor decreases its inventory account? Marsh returned inventory to the supplier that Marsh has purchased for cash. All of these transactions either increase or decrease Marsh's inventory account. Marsh granted a customer an allowance by reducing the purchasing price. Marsh purchased of merchandise on account You Answered Marsh paid freight costs to ship goods from its supplier to Marsh.

Marsh granted a customer an allowance by reducing the purchasing price.

Which of the following determines the quality of earnings ratio? Revenues divided by operating income Net cash provided by operating activities divided by operating income Net cash flow from all activities divided by the net income Net cash provided by operating activities divided by net income Operating income divided by the net income

Net cash provided by operating activities divided by net income Solution: Learning objective 7 An indicator of the quality of earnings is the quality of earnings ratio, which is net cash provided by operating activities divided by net income.

How is gross profit measured? Operating expenses minus cost of goods sold Operating expenses minus net income Sales revenue minus cost of goods sold Sales revenue minus sales discounts and sales returns and allowances Sales revenue minus operating expenses

Sales revenue minus cost of goods 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? None of the above would explain Haverty's increase in gross profit rate. The company's new profit lines with lower margins became a larger component of their sales. The company increased its product markdowns and discounts offered to customers in the current year. The company's global sourcing efforts at the beginning of the current year resulted in a lower cost of merchandise sold.

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

Which of the following is true regarding the profit margin ratio and the gross profit rate? All of these The gross profit rate will normally be higher than the profit margin ratio. The gross profit rate is computed by dividing net sales by gross profit, and the profit margin ratio is computed by dividing net sales by net income. None of these A profit margin ratio of 7% means that the company has 7 cents of net income for each dollar of gross profit, and a gross profit rate of 7% means that the company has 7 cents of net income for each dollar of gross profit.

The gross profit rate will normally be higher than the profit margin ratio. Gross profit rate = Gross profit divided by net sales Profit margin ratio = Net income divided by net sales Since gross profit is normally higher than the same company's net income (e.g., due to operating expenses), a company's gross profit rate is normally higher than its profit margin ratio.

The operating cycle of a merchandising company has an extra expense account compared to a service company. What is that extra expense account? Revenue Operating Expense Accounts Receivable Cost of Goods Sold Income Summary

cogs The operating cycle of a service company involves performing services for customers and collecting (i.e., receiving) cash from customers. The operating cycle of a merchandising company includes these two steps and two additional two steps, including buying of inventory and delivering inventory. These extra steps create a need for two accounts not used by service companies: (i) inventory and (ii) cost of goods sold. Inventory is reported on the balance sheet, and cost of goods sold is reported on the income statement. Chapter 5, Learning objective 1

Which factor would not affect the gross profit rate? Group of answer choices An increase in the price of inventory items An increase in the use of "discount pricing" to sell merchandise An increase in the cost of heating the store An increase in the sale of luxury items None of these would affect the gross profit rate

heating

Gross profit appears on a multiple-step income statement but not on a single-step income statement. on a single-step income statement but not on a multi-step income statement. none of these are true. on neither single-step income statements nor multi-step income statements. on both single-step income statements and multi-step income statements.

on a multiple-step income statement but not on a single-step income statement. Solution: Multi-step income statements report the following: Revenues minus cost of goods sold equals gross profit, and gross profit minus operating expenses (e.g., salaries & wages, advertising, utilities, depreciation, freight-out, insurance) equals income from operations, and income from operations. This is followed by other revenues and expenses (e.g., interest revenue, interest expense, gain from sales of plant assets, losses from sales of plant assets) which equals income before income taxes, and income before income taxes minus income taxes equals net income.

Sampson Company's accounting records show the following account balances: Purchase Discounts $ 8,000 Purchases 360,000 Beginning Inventory 38,000 Ending Inventory 31,000 Sales 670,000 Using the periodic system, the cost of goods sold is Group of answer choices $359,000. $352,000. $390,000. $311,000. $345,000.

359

Clark Corporation uses the perpetual inventory system. Clark Corporation purchased merchandise on account for $10,000 with terms 2/10, n/30. How would Clark Corporation record this transaction? Debit purchases for $10,000; credit accounts payable for $10,000. Debit purchases for $9,800; credit accounts payable for $9,800. Debit inventory for $10,000; credit accounts payable for $10,000. Debit inventory for $9,800; credit accounts payable for $9,800. Debit inventory for $10,000; credit purchases for $10,000.

Debit inventory for $10,000; credit accounts payable for $10,000. Solution: The company purchasing merchandise uses the perpetual inventory system. When it purchases inventory, it should debit the inventory account for the invoice price. Since merchandise is purchased on account, it should credit the accounts payable account for the invoice price.

Manning Corporation uses the periodic inventory system. Manning Corporation purchased merchandise on account for $15,000 with terms 1/15, n/30. How would Manning Corporation record this transaction? Debit inventory for $15,000; credit purchases for $15,000. Debit purchases for $14,850; credit accounts payable for $14,850. Debit inventory for $15,000; credit accounts payable for $15,000. Debit inventory for $14,850; credit accounts payable for $14,850. Debit purchases for $15,000; credit accounts payable for $15,000.

Debit purchases for $15,000; credit accounts payable for $15,000. Solution: The company purchasing merchandise uses the periodic inventory system. When it purchases inventory, it should debit the purchases account for the invoice price. Since merchandise is purchased on account, it should credit the accounts payable account for the invoice price.

Which statement is incorrect? Periodic inventory systems provide more timely measurement of inventories than perpetual inventory systems. Computers and electronic scanners make it easier for companies to use a perpetual inventory system. Freight-in is debited to the inventory account when a perpetual inventory system is used. Regardless of using either a perpetual or periodic inventory system, companies should take a physical inventory count at the end of each period. All of these are correct.

Periodic inventory systems provide more timely measurement of inventories than perpetual inventory systems.

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

a A wholesaler is an intermediary. It sells to another business that will resell to consumers.

Clark Corporation uses the perpetual inventory system. On May 1, Clark Corporation sells merchandise on account for $10,000 with terms 2/10, n/30. Clark Corporation had paid $6,000 to acquire the merchandise. On May 7, the buyer returns merchandise with an invoice price of $1,000 to Clark Corporation. The merchandise returned to Clark Corporation had cost Clark Corporation $600. On May 30, Clark Corporation receives payment for the merchandise retained by the buyer. The journal entry that Clark Corporation records when it receives the payment from the buyer on May 30 includes a debit to cash for $8,820. credit to cash for $8,816. debit to cash for $9,000. credit to cash for $9,000. credit to cash for $8,820.

cr cash 8820 Solution: The company selling merchandise uses the perpetual inventory system. When it collects payment for the balance due after the discount period, it collects the invoice price of the inventory not returned by the purchaser without any sales discount. The cash collected by the seller is $9,000 (i.e., $10,000 - 1,000 = $9,000).

In a perpetual inventory system, which accounts will the seller credit when a customer returns merchandise after purchasing it on account? (i) Accounts Receivable and (ii) Cost of Goods Sold (i) Sales Returns and Allowances and (ii) Accounts Receivable (i) Revenue and (ii) Accounts Receivable (i) Sales Returns and Allowances and (ii) Inventory (i) Inventory and (ii) Cost of Goods Sold

(i) Accounts Receivable and (ii) Cost of Goods Sold

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? 34.6% 41.0% 12.4% 20% 16.0%

12.4 Profit margin = Net income divided by net sales Net sales = Sales revenue minus sales returns and allowances minus sales discounts Net sales = 312,000 - 2,000 - 4,000 = 306,000 Net income = Net sales - cost of goods sold - operating expenses - other expenses Net income = 306,000 - 184,000 - 79,000 - 5,000 = 38,000 Profit margin = Net income divided by net sales Profit margin = 38,000/306,000 = 12.4%.

Ending inventory is $10,000, beginning inventory is $20,000, and the cost of goods purchased is $25,000. How much is cost of goods sold? Group of answer choices $45,000 $25,000 $15,000 $35,000 $30,000

35

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? 18% 54% 36% 3% 6%

54% The company buying merchandise can wait 10 days and still receive a 3% discount. Otherwise, it can wait an additional 20 days and pay the full invoice amount without being overdue. In other words, a 20-day difference produces 3% interest. An interest rate of 3% in 20 days is equivalent to an interest rate of 54% in 360 days (i.e., 3% x 360/20). Alternatively: The company must pay the invoice no later than 30 days after the sale. If it pays no later than 10 days after the invoice date, the company gets a 3% discount (i.e., 3% x $2,000 = $60). So, the company can save $60 if it pays 20 days before the due date. Interest = Principal x Interest rate x Time $60 = $2,000 x Interest rate x (30-10)/360 Solving for the interest rate: Interest rate = [360/(30-10)] x $60/$2,000 = 0.54 (i.e., 54%)

Arbol Corporation reports the following: Sales revenue $181,000; ending inventory $12,600; beginning inventory $15,000; purchases $65,600; purchases discounts $2,500; purchase returns and allowances $1,500; freight-in $600; freight-out $800. Calculate the cost of goods sold. Group of answer choices $64,600 $79,600 $76,900 $77,700 $59,800

64.6

Information for Leon Company is presented below: Cost of goods sold..................................... $ 70,000 Operating expenses................................... 25,000 Sales discounts........................................... 3,000 Sales returns and allowances................... 8,000 Sales revenue............................................... 150,000 Compute the company's gross profit. $80,000 $55,000 $69,000 $44,000 $139,000

69 Solution: Net sales = Sales revenue - sales returns and allowance - sales discounts Net sales = $150,000 - 8,000 - 3,000 = 139,000 Gross profit = Net sales - cost of goods sold Gross profit = $139,000 - 70,000 = $69,000

Clark Corporation uses the periodic inventory system. On May 1, Clark Corporation purchased merchandise on account for $10,000 with terms 2/10, n/30. Clark Corporation is not satisfied with some of the merchandise and returns merchandise with an invoice price of $1,000 to the seller on May 7. On May 10, Clark Corporation pays for the merchandise it retains. How would Clark Corporation record the return of merchandise on May 7? Debit accounts payable for $980; credit inventory for $980. Debit purchase returns and allowances for $1,000; credit inventory for $1,000. Debit accounts payable for $1,000; credit inventory for $1,000. Debit accounts payable for $980; credit purchase returns and allowances for $980. Debit accounts payable for $1,000; credit purchase returns and allowances for $1,000.

Debit accounts payable for $1,000; credit purchase returns and allowances for $1,000.

Which of the following is a component of the operating cycle of a merchandising company? All of these are components of the operating cycle of a merchandising company Pay rent on a warehouse where inventory is stored Pay a dividend Pay for inventory Pay interest on a loan

Pay for inventory Solution: The operating cycle of a company is the average time required for a company's cash to be put into the cycle and return to the company's cash account. The operating cycle of a merchandising company is the average time a company needs to purchase inventory, sell the inventory to a customer, and collect the cash from the customer thus replenishing the company's cash in preparation to repeat the cycle. Companies that manufacture their inventory have the added step of converting raw materials to work in progress and finally finished goods. Service companies have a shorter operating cycle—they do not purchase or produce inventory. Warning: Some students confuse operating cycle and cash flows from operating activities. The operating cycle includes only the steps described above; the operating cycle does not include other cash flows from operations (e.g., paying employees' wages, paying rent, paying for insurance), and the operating cycle certainly does not include financing activities (e.g., borrowing money, repaying loans with interest, paying dividends) or investment activities (e.g., buying equipment or stocks & bonds of other companies).

Under what inventory system is cost of goods sold determined after each sale? Double entry inventory system No inventory systems Single entry inventory system Perpetual inventory system Periodic inventory system

Perpetual inventory system Under the perpetual inventory system, cost of goods sold is determined with each sale.

The journal entry to record a sale of merchandise for $1,200 on account with terms of 2/10, n/30 will include a credit to Sales Returns and Allowances for $24. credit to Accounts Receivable for $1,200. credit to Sales Revenue for $1,200. debit to Sales Revenue for $1,176. debit to Sales Discounts for $24. Record the sale on account with the following accounts debited and credited: Debit: Accounts Receivable for $1,200 Credit Sales Revenue for $1,200

cr sales rev 1200 Record the sale on account with the following accounts debited and credited: Debit: Accounts Receivable for $1,200 Credit Sales Revenue for $1,200

When goods sold for cash are returned to the selling company, the selling company should credit Accounts Receivable. credit Sales Returns and Allowances. debit Accounts Receivable. debit Sales Revenue. debit Sales Returns and Allowances.

debit Sales Returns and Allowances. Solution: Contra revenue accounts include: 1. Sales discounts 2. Sales returns and allowances Contra revenue accounts are used to compute net sales. Both normally have debit balances while revenue normally has a credit balance. The journal entry to record a sales return debits sales returns and allowances and credits cash or accounts receivable.

Manning Corporation uses the perpetual inventory system. On April 1, Manning Corporation sells merchandise on account for $15,000 with terms 1/15, n/30. Manning Corporation had paid $9,000 to acquire the merchandise. On April 7, Manning's customer returns merchandise with an invoice price of $1,000. The merchandise returned to Manning Corporation had cost Manning Corporation $600. On April 10, Manning Corporation receives payment for the merchandise retained by the buyer. The journal entry that Manning Corporation records when it receives the payment from its customer on April 10 includes a credit to cash for $13,860. credit to cash for $140. credit to cash for $9,000. debit to cash for $13,860. debit to cash for $9,000.

debit to cash for $13,860.

Jerry's Market uses a perpetual inventory system to record the following events involving a recent purchase of inventory: i. On August 1,purchased merchandise for $20,000, terms 1/10, n/30. ii. On August 3, paid freight costs of $400 on merchandise purchased. iii. On August 6, returned $900 of merchandise to the supplier. iv. On August 9, paid the amount due to the supplier. As a result of these events, Jerry's Market Company's inventory increased by $19,500. increased by $19,309. increased by $18,305. increased by $18,909. increased by $19,909.

increased by $19,309.

Wilma's Foods recorded the following events involving a recent purchase of inventory: Received goods for $35,000, terms 1/10, n/30. Returned $600 of the shipment for credit. Paid $150 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: Group of answer choices increased by $34,056. increased by $43,810. increased by $34,206. increased by $35,150. increased by $35,000

increased by $34,206.

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? Group of answer choices $130,000 $150,000 $120,000 $110,000 $270,000

130

A company has the following: Sales revenue $95,000; Sales Returns and Allowances $15,000; Sales Discounts $5,000; Cost of Goods Sold $35,000; Operating Expenses $22,000; Other expenses $3,000. How much is the profit margin? Group of answer choices 12.4% 75% 16% 34.6% 20%

20

Ending inventory is $12,000, cost of goods sold is $33,000, and the cost of goods purchased is $22,000. How much is beginning inventory? $43,000 $33,000 $23,000 $13,000 $45,000

23

Ending inventory is $12,000, cost of goods sold is $33,000, and the cost of goods purchased is $22,000. How much is beginning inventory? $13,000 $33,000 $45,000 $23,000 $43,000

23 Solution: Learning objective 5 Cost of goods sold = Beginning inventory + purchases - ending inventory. Solve for ending inventory. Beginning balance is equal to ending inventory ($12,000) plus the cost of goods sold ($33,000) less the cost of goods purchased ($22,000) for a total of $23,000.

A company has the following accounts balances: Sales revenue $2,000,000; Sales Returns and Allowances $250,000; Sales Discounts $50,000; Cost of Goods Sold $1,275,000; and Net income $153,000. How much is the gross profit rate? 25% 36% 46.7% 51% 64%

25 Solution: Net sales = Sales revenue - sales returns and allowances - sales discounts Net sales = 2,000,000 - 250,000 - 50,000 = 1,700,000 Gross profit = Net sales - cost of goods sold Gross profit = 1,700,000 - 1,275,000 = 425,000 Gross profit divided by net sales equals the gross profit rate. Gross profit rate = 425,000/1,700,000 = 25%

Simpsons Company's accounting records show the following account balances: Beginning Inventory $ 50,000 Ending Inventory 20,000 Freight-In 14,500 Freight-Out 20,000 Purchases 244,000 Purchase Returns and Allowances 7,400 Purchase Discounts 8,000 The company uses the periodic inventory system. Based on the information above compute cost of goods sold. $278,600 $243,100 $273,100 $293,100 $258,600

273 Solution: Net purchases = Purchases - Purchase discounts - Purchase R&A + Freight In Net purchases = 244,000 - 8,000 - 7,400 + 14,500 = 243,100 Cost of goods sold = Beginning inventory + Net purchases - Ending inventory Cost of goods sold = 50,000 + 243,100 - 20,000 = 273,100

A company shows the following balances: Sales Revenue $1,000,000 Sales Returns and Allowances 175,000 Sales Discounts 25,000 Cost of Goods Sold 560,000 Net income 220,000 Which of the following is closest to this company's gross profit rate? Group of answer choices 30% 56% 27.5% 70% 44%

30

Financial information is presented below: Operating expenses $ 35,000 Sales returns and allowances 12,000 Sales discounts 3,000 Sales revenue 140,000 Cost of goods sold 85,000 Net income 5,000 Which of the following is closest to this company's gross profit rate? Group of answer choices 34% 68% 4% 32% 39%

32

Samba Company's accounting records show the following account balances: Beginning Inventory $ 43,000 Ending Inventory 55,000 Freight-In 11,500 Freight-Out 15,500 Purchases 375,000 Purchase Returns and Allowances 11,000 Purchase Discounts 9,000 The company uses the periodic inventory system. Based on the information above compute cost of goods sold. $354,500 $358,500 $370,000 $343,000 $366,500

354.5 Net purchases = Purchases - Purchase discounts - Purchase R&A + Freight In Net purchases = 375,000 - 9,000 - 11,500 + 11,500 = 366,500 Cost of goods sold = Beginning inventory + Net purchases - Ending inventory Cost of goods sold = 43,000 + 366,500 - 55,000 = 354,500

Tony's Market uses a perpetual inventory system to record the following events involving a recent purchase of inventory: i. On May 1, purchased merchandise for $40,000, terms 2/10, n/30. ii. On May 3, paid freight costs of $200 on merchandise purchased. iii. On May 6, returned $800 of merchandise to the supplier. iv. On May 9, paid the amount due to the supplier. As a result of these events, Tony's Market Company's inventory increased by $38,616. increased by $38,416. increased by $38,412. increased by $39,400. increased by $38,612.

38616 Solution: [(Purchase - purchase returns) x (100% - discount percentage] [(40,000 - 800) x 98% + 200 = 38,616

Martin Company purchases $4,200 of merchandise on March 1, with credit terms of 3/10, n/30. If Martin pays on March 11, Martin must pay $4,520. $3,864. $4,074. $3,780. $4,200.

4,074. The terms 3/10, n/30 indicate that the discount is 3% if payment is made within 10 days of the invoice date. This permits Martin Company to take a discount of $126 (3% x $4,200) on the invoice, $4,200 - 126 = $4,074.

Financial information for Edwards Company is presented below: Operating expenses $ 35,000 Sales returns and allowances 12,000 Sales discounts 3,000 Sales revenue 140,000 Cost of goods sold 85,000 What is the company's gross profit? $5,000 $52,000 $55,000 $43,000 $40,000

40 Solution: Net sales = Sales - Sales returns & allowances - Sales discounts Net sales = $140,000 - 12,000 - 3,000 = $125,000 Gross profit = Net sales - cost of goods sold Gross profit = $125,000 = 85,000 = $40,000

Arbor Corporation reports the following: Sales revenue $182,000; ending inventory $11,600; beginning inventory $21,700; purchases $64,000; purchases discounts $2,000; purchase returns and allowances $2,100; freight-in $900; freight-out $600. Calculate the company's cost of goods sold. Group of answer choices $70,900 $50,700 $70,300 $82,500 $69,400

70.9

Which of the following is true regarding the profit margin ratio and the gross profit rate? A profit margin ratio of 7% means that the company has 7 cents of net income for each dollar of net sales, and a gross profit rate of 7% means that the company has 7 cents of gross profit for each dollar of net sales. The gross profit rate is computed by dividing net sales by gross profit, and the profit margin ratio is computed by dividing net sales by net income. All of these None of these The gross profit rate will normally be lower than the profit margin ratio.

A profit margin ratio of 7% means that the company has 7 cents of net income for each dollar of net sales, and a gross profit rate of 7% means that the company has 7 cents of gross profit for each dollar of net sales.

Manning Corporation uses the perpetual inventory system. On April 1, Manning Corporation purchased merchandise on account for $15,000 with terms 1/15, n/30. Manning Corporation pays a shipping company $250 to transport the merchandise from the seller to Manning Corporation. Manning Corporation returns merchandise with an invoice price of $1,000 to the seller on April 7. On April 10, Manning Corporation pays for the merchandise it retains. How would Manning Corporation record the payment on April 10 for the merchandise retained? Debit accounts payable for $14,000; credit cash for $13,860; and credit inventory for $140. Debit accounts payable for $14,000; credit cash for $13,857.50; and credit inventory for $142.50. Debit accounts payable for $14,000; credit cash for $13,860; and a credit purchase discounts for $140. Debit accounts payable for $14,000; credit cash for $13,857.50; and credit purchase discounts for $142.50. Debit accounts payable for $14,000; credit cash for $14,000. Solution: The company purchasing merchandise uses the perpetual inventory system. When it pays the balance due for the purchase of inventory within the discount period, it pays the invoice price of the inventory not returned to the seller minus the purchase discount. The purchase discount equals the discount rate multiplied by the net amount purchased (i.e., 1% x ($15,000 - 1,000) = $140). In a perpetual inventory system, the purchase discount reduces the inventory account. The cash paid to the seller is $13,860 (i.e., $15,000 - 1,000 - 140 = $13,860). The buyer would debit accounts payable for $14,000, credit cash for $13,860, and credit inventory for $140.

Debit accounts payable for $14,000; credit cash for $13,860; and credit inventory for $140. Solution: The company purchasing merchandise uses the perpetual inventory system. When it pays the balance due for the purchase of inventory within the discount period, it pays the invoice price of the inventory not returned to the seller minus the purchase discount. The purchase discount equals the discount rate multiplied by the net amount purchased (i.e., 1% x ($15,000 - 1,000) = $140). In a perpetual inventory system, the purchase discount reduces the inventory account. The cash paid to the seller is $13,860 (i.e., $15,000 - 1,000 - 140 = $13,860). The buyer would debit accounts payable for $14,000, credit cash for $13,860, and credit inventory for $140.

Clark Corporation uses the periodic inventory system. Clark Corporation sells merchandise on account for $10,000 with terms 2/10, n/30. The merchandise had cost Clark Corporation $6,000. How would Clark Corporation record the sale of this merchandise? It would record two journal-entries. Debit accounts receivable for $9,800; credit sales revenue for $9,800. Debit cost of goods sold for $6,000; credit inventory for $6,000. It would record two journal-entries. Debit accounts receivable for $10,000; credit sales revenue for $10,000. Debit cost of goods sold for $6,000; credit inventory for $6,000. Debit accounts receivable for $10,000; credit sales revenue for $10,000. Debit accounts receivable for $9,800; credit sales revenue for $9,800. None of these

Debit accounts receivable for $10,000; credit sales revenue for $10,000. Solution: When it sells inventory on account, it should debit account receivable and credit sales revenue for the invoice price. Because it uses the periodic inventory system, it does not journalize the cost of goods sold or decrease in inventory at the time of the sale. Rather, it records cost of goods sold at year-end when it adjusts the inventory account's balance.

Manning Corporation uses the perpetual inventory system. Manning Corporation purchased merchandise on account for $15,000 with terms 1/15, n/30. Manning Corporation pays a shipping company $250 to transport the merchandise from the seller to Manning Corporation. How would Manning Corporation record its payment of the transportation charges? Debit freight-out for $250; credit cash for $250. Debit inventory for $250; credit purchases for $250. Debit freight-in for $250; credit cash for $250. Debit purchases for $250; credit cash for $250. Debit inventory for $250; credit cash for $250.

Debit inventory for $250; credit cash for $250. The company purchasing merchandise uses the perpetual inventory system. When it purchases inventory and must pay shipping charges (i.e., FOB shipping point), it should debit the inventory account for the transportation charges. Since shipping is paid, cash must be credited.

Marsh, Inc. uses the perpetual inventory system. It paid for freight costs to ship merchandise to a customer. Besides the cash account, what account will Marsh record? Inventory Cost of goods sold Revenue Freight-in Freight-out

Freight out Solution: The entry to record the payment of freight costs for goods shipped to a customer requires a debit to Freight-out and a credit to cash. Freight-out is not part of the cost of inventory; it is a delivery expense and appears among the operating expenses on the income statement. In contrast, freight-in is used to record the shipping costs associated with acquiring inventory (note: when using a perpetual inventory system, the shipping cost associated with acquiring inventory is debited to Inventory).

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

Intrest

Jackson Company uses a perpetual inventory system. On November 30, it purchased $10,000 of merchandise and it must pay the $200 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 $200? A debit to Inventory for $200 A credit to Accounts Payable for $200 A debit to Freight-in for $200 A debit to Cash for $200 A debit to Freight-out for $200

a deb to inv for 200 In a perpetual inventory system, all of the cost of acquiring merchandise (including the cost of having the inventory delivered to the purchaser) is recorded as part of the cost of the inventory. The cost of the merchandise and the shipping charges should both be debited to the inventory account. Suppliers sometimes offer discounts (such as 2/10, n/30). However, discounts are offered by suppliers of merchandise and not by shippers. The journal entry for paying the shipping charges includes a debit to inventory for $200 and a credit to cash for $200.

The Sales Returns and Allowances account is classified as a(n) Group of answer choices contra liability account. expense account. contra asset account. contra revenue account. asset account.

contra rev

Clark Corporation uses the periodic inventory system. On May 1, Clark Corporation sells merchandise on account for $10,000 with terms 2/10, n/30. Clark Corporation had paid $6,000 to acquire the merchandise. The buyer is not satisfied with some of the merchandise and on May 7 returns merchandise with an invoice price of $1,000 to Clark Corporation. The merchandise returned to Clark Corporation had cost Clark Corporation $600. On May 10, Clark Corporation receives payment for the merchandise retained by the buyer. The journal entry that Clark Corporation records when it receives the payment from the buyer on May 10 includes a debit to cash for $8,816. debit to cash for $8,820. credit to cash for $8,820. credit to cash for $9,000. debit to cash for $9,000.

debit to cash for $8,820. The company selling merchandise uses the periodic inventory system. When it collects payment for the balance due within the discount period, it collects the invoice price of the inventory not returned by the purchaser minus the sales discount. The sales discount equals the discount rate multiplied by the net amount sold (i.e., 2% x ($10,000 - 1,000) = $180). The cash collected by the seller is $8,820 (i.e., $10,000 - 1,000 - 180 = $8,820).

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 A debit to Cash for $250 A credit to Accounts Payable for $250 A debit to Freight-out for $250 A debit to Freight-in for $250

dr inv Solution: In a perpetual inventory system, all of the cost of acquiring merchandise (including the cost of having the inventory delivered to the purchaser) is recorded as part of the cost of the inventory. The cost of the merchandise and the shipping charges should both be debited to the inventory account. Suppliers sometimes offer discounts (such as 2/10, n/30). However, discounts are offered by suppliers of merchandise and not by shippers. The journal entry for paying the shipping charges includes a debit to inventory for $250 and a credit to cash for $250.

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

intrest Solution: Multi-step income statements report the following: Revenues minus cost of goods sold equals gross profit, and gross profit minus operating expenses (e.g., salaries & wages, advertising, utilities, depreciation, freight-out, insurance) equals income from operations, and income from operations minus non-operating income &/or expenses (e.g., interest revenue, interest expense, gain from sales of plant assets, losses from sales of plant assets) equals income before income taxes, and income before income taxes minus income taxes equals net income.

The operating cycle of a merchandising company has an extra asset account compared to a service company. What is that extra asset account? Revenue Operating Expense Income Summary Accounts Receivable Inventory

inv Solution: The operating cycle of a service company involves performing services for customers and collecting (i.e., receiving) cash from customers. The operating cycle of a merchandising company includes these two steps and two additional two steps, including buying of inventory and delivering inventory. These extra steps create a need for two accounts not used by service companies: (i) inventory and (ii) cost of goods sold. Inventory is reported on the balance sheet, and cost of goods sold is reported on the income statement.

Marsh uses a perpetual inventory system. On December 29, Marsh, Inc. sold inventory for $5,500 on account with terms 2/10 n/30. The customer pays on January 3. What amount will Marsh record in its inventory account on January 3? Credit of $5,500 Credit of $5,390 No entry will be made. Debit of $5,390 Debit of $5,500

not enty Solution: In a perpetual inventory system, companies record increases to inventory when they buy it and when customers return it, and they record decreases to inventory when they sell it. It would record $5,500 of cost of goods sold on December 29 with a $5,500 decrease in inventory. Inventory does not increase or decrease on January 3. Under the periodic inventory system, all entries that will be made to the inventory account will be held at the end of the reporting period. If the company had used a periodic inventory system, no entry will be made on the sale date or the cash received date.

In a perpetual inventory system, inventory becomes part of cost of goods sold when a company sells the inventory. receives the inventory. pays for the inventory. manufactures the inventory. receives payment from the customer.

sells the inventory.

If a company is using aggressive accounting techniques in order to accelerate income recognition then its quality of earnings ratio is below zero. significantly less than 1. significantly more than 1. significantly more than 100. equal to zero.

significantly less than 1.

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

Helix Company purchased merchandise with an invoice price of $1,000 and credit terms of 1/10, n/40. Assuming a 360 day year, what is the implied annual interest rate inherent in the credit terms? Group of answer choices 36% 1% 54% 12% 18%

12

Financial information for Edwards Incorporated is presented below: Operating expenses $ 35,000 Sales returns and allowances 12,000 Sales discounts 3,000 Sales revenue 140,000 Cost of goods sold 85,000 What is the company's net sales? $128,000 $40,000 $125,000 $137,000 $140,000

125 Net sales = Sales - Sales returns & allowances - Sales discounts Net sales = $140,000 - 12,000 - 3,000 = $125,000

Sampson Company's accounting records show the following account balances: Sales $ 510,000 Purchases 330,000 Beginning Inventory 29,000 Ending Inventory 24,000 Purchase Returns and Allowances 4,000 Using the periodic system, the cost of goods sold is $321,000. $179,000. $326,000. $355,000. $331,000.

331

Sampson Company's accounting records show the following account balances: Sales $ 600,000 Purchases 355,000 Beginning Inventory 23,000 Ending Inventory 28,000 Purchase Returns and Allowances 3,000 Using the periodic system, the cost of goods sold is $357,000. $253,000. $375,000. $347,000. $352,000.

347 Cost of goods sold = Beginning inventory + purchases - purchase returns & allowances - purchase discounts - ending inventory Cost of goods sold = 23,000 + 355,000 - 3,000 - 0 - 28,000 = 347,000 Chapter 5, Learning objective 5, Pool 1

Financial information is presented below: Operating expenses $ 28,000 Sales returns and allowances 7,000 Sales discounts 3,000 Sales revenue 150,000 Cost of goods sold 91,000 Net income $10,000 Which of the following is closest to this company's gross profit rate? 27% 7% 65% 33% 35%

35 Solution: Sales, $150,000 Less: Sales returns and allowances, $7,000 Less: Sales discounts, $3,000 Net sales, $140,000 Less: Cost of goods sold, $91,000 Gross profit, $49,000 Gross profit rate = Gross profit/Net sales Gross profit rate = $49,000/$140,000 = 0.35 or 35%

Hinckley Corporation has the following: Cost of goods sold $ 85,000 Operating income 10,000 Sales discounts 3,000 Sales returns and allowances 12,000 Sales revenue 140,000 Net income 5,000 Which of the following is closest to this company's profit margin?

4%

Which of the following statements is correct about the periodic inventory system?

A company which uses a periodic inventory system needs only one journal entry when it sells merchandise.

Indicate which one of the following would not likely appear on both a multi-step income statement and a single-step income statement. Net income Cost of goods sold All of these would appear on both types of income statement Gross profit None of these would appear on both types of income statement

Gross profit