chapter 5

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 $84,000. How much is the profit margin? 16.0% 12.2% 41.0% 12.4%

12.4% Net income divided by net sales results in the profit margin. Net sales = $312,000 ‒ $2,000 ‒ $4,000 = $306,000 Net income = $306,000 ‒ $184,000 ‒ $84,000 = $38,000 Profit margin = $38,000/$306,000 or a profit margin ratio of 12.4%.

When credit terms of 1/15, n/60 are offered, how long is the discount period? 15 days 1 day 45 days 60 days

15 days

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 cost of goods sold= beginning inventory + purchases - ending inventory 31,000 = 12,000 + 34,000 - ? 15,000!

Net income is $15,000, operating expenses are $20,000, net sales total $75,000, and sales revenues total $95,000. How much is the profit margin?

20% net income/net sales 15,000/75,000 = 20 %

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?

35,000 20,000 + 25,000 - 10,000

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? $420,000 $440,000 $390,000 $410,000

390,000 beginning inventory + cost of goods sold - ending inventory

Net income is $15,000, operating expenses are $20,000, and net sales total $75,000. How much is cost of goods sold? $15,000 $60,000 $40,000 $35,000

40,000 Sales less cost of goods sold equals gross profit. Subtracting operating expenses from gross profit equals net income. Working backwards, net income ($15,000) plus operating expenses ($20,000) results in a gross profit of $35,000. Subtracting gross profit ($35,000) from net sales ($75,000) results in cost of goods sold of $40,000.

Martin Company purchases $4,200 of merchandise on March 1, with credit terms of 3/10, n/30. If Martin pays on March 11, what is the cost of this purchase?

4074 4,200 x .03 = 126 4,200 - 126 = 4074

Net income is $15,000, operating expenses are $20,000, and net sales total $75,000. How much is the gross profit rate?

46.7% gross profit= netincome + operating expenses gross profit= 15,000+20,000 35,000/75,000 = gross profit rate

A credit sale of $750 is made on June 13, terms 2/10, n/30, on which a return of $50 is granted on June 16. What amount is received as payment in full on June 23?

686 *750-50 *700 x .02 *700-14 =686

Sales revenue total to $10,000. Sales returns and allowances are $500 and sales discounts are $1,000. How much is net sales?

8,500 Net sales is sales revenue ($10,000) less both sales returns and allowances ($500) and sales discounts ($1,000), for a net sales total of $8,500.

If sales revenues totals $400,000, cost of goods sold is $310,000, and operating expenses are $60,000, how much is the gross profit? $400,000 $30,000 $90,000 $340,000

90,000 sales revenue-cost of goods sold

In a perpetual inventory system, which accounts will the seller credit when merchandise is returned by a customer? A. Accounts Receivable and Cost of Goods Sold B. Sales Returns and Allowances and Accounts Receivable C. Sales Returns and Allowances and Inventory D. Inventory and Cost of Goods Sold

A.

In a perpetual inventory system, which accounts will the seller credit when merchandise is returned by a customer? A. Accounts Receivable and Cost of Goods Sold B. Sales Returns and Allowances and Accounts Receivable C. Sales Returns and Allowances and Inventory D. Inventory and Cost of Goods Sold

A.

Which of the following is classified in an income statement as a nonoperating activity? A. Receiving dividend revenue from an investment B. Paying for a purchase of inventory C. Receiving an allowance for merchandise damaged in shipment D. Returning merchandise

A.

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? A. Freight-out account B. Freight-in account C. Inventory D. Cost of goods sold account

A. Freight-out should be recorded in a separate account from freight-in since the cost of freight-in is inventoriable, while freight-out is an operating expense.

Cosmos Corporation, which uses a perpetual inventory system, purchased $2,000 of merchandise on July 5 on account. Credit terms were 2/10, n/30. It returned $400 of the merchandise on July 9. Which of the following is one effect when Cosmos pays its bill on July 21? A. Credit to Cash for $1,600 B. Debit to Cash for $1,600 C. Credit to Accounts Payable for $1,600 D. Debit to Accounts Payable for $2,000

A. Since the bill is paid after the discount period, the balance due is $2,000 less the returned goods of $400, or $1,600. The entry will debit Accounts Payable and credit Cash.

On what amount is a sales discount based? A. Invoice price less returns and allowances B. Invoice price plus freight-out C. Invoice less discount D. Invoice price plus freight-in

A. The buyer is permitted to take the discount on the invoice price less any returns and allowances, because this amount represents the buyer's current obligation.

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

An increase in cost of goods sold. 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.

Which is true about a wholesaler? A. It sells only to manufacturing companies. B. It sells to another business, which will sell to a consuming customer. C. It is a company that sells to consumers at a discount. D. It conducts large sales for consumers on a recurring basis.

B.

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 needs two journal entries when it sells merchandise. C. A company which uses a perpetual inventory system debits inventory and credits cost of goods sold when it sells merchandise. D. None of the answer choices are correct.

B. When a perpetual inventory system is in use, one journal entry is made for the sale, and then a second is made for the cost of goods sold.

To what is the gross profit rate equal? A. Cost of goods sold divided by net sales B. Sales minus cost of goods sold, divided by cost of goods sold C. Net sales minus cost of goods sold, divided by net sales D. Net income divided by net sales

B. the gross profit rate is equal to net sales minus cost of goods sold divided by net sales.

Which of the following is a merchandiser that sells directly to consumers? A. Customer B. Service enterprise C. Retailer D. Wholesaler

C.

Which of these accounts normally have a debit balance? ASales Discounts only B.Sales Returns and Allowances only C. Both Sales Discounts and Sales Returns and Allowances D. Neither Sales Discount nor Sales Returns and Allowances

C.

Which factor would not affect the gross profit rate? A. An increase in the price of inventory items B. An increase in the use of "discount pricing" to sell merchandise C. An increase in the cost of heating the store D. An increase in the sale of luxury items

C. An increase in the the cost of heat (electricity) causes total expenses to increase. However, electricity is an operating expense and does not affect gross profit.

Jax Company uses a perpetual inventory system and on November 30 purchased merchandise for which it must pay the shipping charges. Which of the following is one part of the required journal entry when Jax pays the shipping charges of $200? A. A debit to Freight-out for $200 B. A debit to Delivery Expense for $200 C. A debit to Inventory for $200 D. A debit to Cash for $200

C. The cost of having merchandise delivered to the store is part of the cost of getting the inventory ready to sell. All costs incurred to get inventory ready to sell are included as part of Inventory account with a debit

Which of the following items does not result in an entry to the Inventory account under a perpetual system? A. A return of Inventory to the supplier B. A purchase of merchandise C. Payment of freight costs for goods shipped to a customer D. Payment of freight costs for goods received from a supplier

C. this entry requires a debit to Freight-out and a credit to cash. Freight-out is not part of the cost of inventory.

Which of the following statements about a periodic inventory system is true? A. The increased use of computerized systems has increased the use of the periodic system. B. Companies continuously maintain detailed records of the cost of each inventory purchase and sale. C. The periodic system provides better control over inventories than a perpetual system. D. Companies determine cost of goods sold only at the end of the accounting period.

D.

Which of the following statements is correct? A. A periodic inventory system computes cost of goods sold each time a sale occurs. B. A perpetual inventory system computes cost of goods sold only at the end of the accounting period. C. A periodic inventory system provides better control over inventories than does a perpetual inventory system. D. A perpetual inventory system provides better control over inventories than does a periodic inventory system.

D.

Which one of the following will result in gross profit? A. Operating expenses less net income B. Sales revenue less operating expenses C. Operating expenses less cost of goods sold D. Sales revenue less cost of goods sold

D.

Which statement is true for the seller? A. The Sales Returns and Allowances account is credited for defective merchandise returned by a customer. B. The Sales Discounts account is credited for defective merchandise returned by a customer. C. The Sales Discounts account is debited for defective merchandise returned by a customer. D. The Sales Returns and Allowances account is debited for defective merchandise returned by a customer.

D.

Which statement is true when recording the sale of goods for cash in a perpetual inventory system? A. Two journal entries are necessary: one to record the receipt of cash and reduction of inventory, and one to record the the cost of goods sold and sales revenue. B. Only one journal entry is necessary. It will record cost of goods sold and reduce of inventory. C. Only one journal entry is necessary. It will record the receipt of cash and sales revenue. D. Two journal entries are necessary: one to record the receipt of cash and sales revenue, and one to record the cost of goods sold and to reduce inventory.

D.

Which of the following is classified in an income statement as a nonoperating activity? A. Advertising expense B. Cost of goods sold C. Freight-out D. Interest expense

D. *interest anything is always "other"

Assume that sales revenue are $450,000, sales discounts are $10,000, net income is $35,000, and cost of goods sold is $320,000. How much are gross profit and operating expenses, respectively?

Gross profit=sales revenue-cost of goods sold gross profit= 450,000 - 10,000 (sales discounts) -320,000 to get 120,000 gross profit = net income - operating expenses 120,000 = 35,000 therefore operation expenses are 85,000

Under what system is cost of goods sold determined at the end of an accounting period? Perpetual inventory system Double entry inventory system Single entry inventory system Periodic inventory system

Periodic inventory system. Under the periodic inventory system, cost of goods sold for the period is calculated by adding purchases for the period to the beginning inventory balance and subtracting the ending inventory balance.

Which of the following will be shown on the income statement for a merchandising company? Gross profit Cost of goods sold A sales revenue section All of the answer choices are correct

all answers are correct

how to do you find cost of goods available for sale?

beginning inventory + purchases - sales discounts and purchases returns and allowances + freight in

What type of accounts are Sales Returns and Allowances and Sales Discounts?

contra revenue accounts

Which of the following would appear on both a single-step and a multiple-step income statement? Income from operations Cost of goods sold Other expenses and losses Gross profit

cost of goods sold

Myers and Company sold $1,800 of merchandise on account to Oscar, Inc. on March 1 with credit terms of 2/10, n/30. Oscar returned $500 of the merchandise due to poor quality on March 3. If Oscar pays for the purchase on March 11, what entry does Myers make to record receipt of the payment?

debit: Cash 1,274 Sales Discount 26 credit: Accounts Receivable 1,300 *subtract 500 from 1800 then apply the discount*

A retailer makes a $100 sale with terms of 2/10, n/30 on the first of the month. The customer returns $20 of merchandise for credit on account. What journal entry will the retailer record when payment is received within the discount period under a perpetual inventory system?

debit: cash 78.40 debit: sales discount 1.60 credit: accounts receivable 80.00

Sales Discounts is a contra asset account. true or false?

false

The operating cycle of a merchandising company is ordinarily shorter than that of a service company. true or false?

false. A service company's operating cycle is ordinarily shorter than that of a merchandising company.

Discount term of 2/10, n/30 mean that a 10% cash discount is available if payment is made within 30 days. true or false?

false. means a 2% discount if payed in 10 days

The operating cycle of a merchandising company is ordinarily ___________________ that of a service firm.

longer than

Gross profit is the difference between net sales and cost of goods sold. true or false?

true

If the profit margin is 5% and total expenses are $1,330,000, the net sales are $1,400,000. true or false?

true. Net income divided by net sales equals profit margin ($1,400,000 ‒ $1,330,000)/$1,400,000 = 5%.

Sales Returns and Allowances is a contra-revenue account. true or false

true. Sales Returns and Allowances is reported on the income statement as a deduction from Sales Revenue.

Which inventory system will likely be used by a company with merchandise that has a high unit value? A. Double entry inventory system B. Periodic inventory system C. Single entry inventory system D. Perpetual inventory system

D. The perpetual inventory system is traditionally used with merchandise with a high unit value.