Chapter 6 AC 210

Any costs incurred to get the merchandise into a condition and location ready for sale should be debited to ______.

Inventory

Why is inventory reported as a current asset?

Inventory is reported as a current asset because it will be converted into cash within a year of the balance sheet date.

Which inventory system updates the inventory account only at the end of the accounting period?

Periodic

Surfshack Corp. buys surfboards, wetsuits, and surf wax from Rip to Shreds, Inc. for sale to consumers. What type of company is Surfshack Corp?

Retail merchandiser

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

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

Merchandisers record revenue when they ______.

fulfill their performance obligations by transferring control of the goods to customers

Inventory shrinkage as a result of theft, damage or obsolescence that is discovered during a physical inventory count at the end of the accounting period is recorded with a decrease to Inventory ______.

only in a perpetual system

Sales Revenue reports the ______.

sales price times the quantity of goods sold

FOB ______ is the term used when ownership of the goods transfers to a buyer as soon as the goods leave the seller's place of business.

shipping point

To determine cost of goods sold for the period requires ______.

subtracting ending inventory from the goods available to sell, which is the beginning inventory plus purchases

Bijoux Company has sales of $40,000, beginning inventory of $5,000, purchases of $25,000, and ending inventory of $7,000. The goods available for sale for the period equals ______.

$30,000

Using a perpetual inventory system, what is recorded when a customer returns a product and gets the cash back and the product is put back on the store shelf to be resold?

A debit to Sales Returns & Allowances and a credit to Cash; and a debit to Inventory and a credit to Cost of Goods Sold

The journal entry to record the payment for merchandise previously purchased on account includes a debit to ______ and a credit to ______.

Accounts Payable; Cash

The Cost of Goods Sold equation is ______.

Beginning Inventory + Purchases - Ending Inventory

Breyer Company bought inventory FOB shipping point from Cellar Company for $4,000 cash, including shipping charges. On December 31, the last day of the accounting year, the goods were on a truck owned by Common Carrier Company, and not expected to arrive until January 3. Which company should include these goods in its December 31 inventory?

Breyer Company should include the $4,000 in its inventory.

Beginning Inventory + Purchases - Ending Inventory = ______.

Cost of Goods Sold on the income statement

Which of the following costs should be added to the buyer's Inventory account?

Freight-in with terms FOB shipping point

In which of these situations would a merchandiser record revenue? (Select all that apply.)

Goods were sent FOB Shipping Point but have not yet arrived at the buyer's place of business. The obligation has been fulfilled and control of the goods has been transferred to the customer.

Which of the following are reported on the income statement?

Gross Profit Cost of Goods Sold Sales Revenue

In a perpetual inventory system, the buyer of merchandise with the shipping terms FOB shipping point will ______.

add the transportation costs to its Inventory account

Goods Available for Sale will ______ when sold.

become Cost of Goods Sold on the income statement

The Inventory balance on the balance sheet reports the ______.

cost of goods available for sale

Inventory consists of all ______.

costs needed to get the inventory ready for sale

Using a perpetual inventory system, the entry to record the return of goods you previously purchased on account includes a ______. (Check all that apply and answer from the viewpoint of the buyer.)

credit to Inventory debit to Accounts Payable

Inventory is reported as a(n) ______.

current asset on the balance sheet

In a perpetual system, the entry to record a purchase of merchandise on account includes a ______. (Check all that apply.)

debit to Inventory credit to Accounts Payable

FOB ______ is the term used when ownership of the goods transfers to a buyer when the goods arrive at the buyer's place of business.

destination

To ensure the accuracy of inventory accounted for using a perpetual system, physical counts ______.

detect bookkeeping errors detect shrinkage detect theft

The purchase discount term, 2/10, n/30, means that the purchaser may receive a discount ______.

of 2% if paid within 10 days of the purchase date

Ace Electronics had Cost of Goods Sold of $20,000. If purchases of inventory were $23,000 and Ending Inventory was $6,000, Ace's Beginning Inventory must have been ______.

$3,000

A purchaser is offered a 2% discount if the bill is paid within 7 days, otherwise the full amount is due in 30. This purchase discount is expressed on the invoice as follows:

2/7,n/30

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, 600, 1600

True or false: Gross Profit is a stockholders' equity account and is credited when goods are delivered to customers.

false

Which of the following should be debited to Inventory?

freight-in if shipped FOB shipping point purchases of merchandise on account

If Accounts Payable is debited and Cash is credited, then the company is recording a ______.

payment of amounts owed for purchases made on account

A benefit of the control _______ , inventory system is that inventory shrinkage from theft, fraud and error is able to be estimated.

perpetual

A major drawback to the periodic inventory system is ______.

the amount of inventory on hand and sold is unavailable during the accounting period

If sales returns and allowances are a large dollar amount relative to initial sales revenue, it may mean ______.

there are product quality issues

Acme Enterprises, which uses a perpetual inventory system, recorded a debit to Sales Returns & Allowances and a credit to Accounts Receivable. (No other accounts were affected.) What business event must have taken place?

The customer received a damaged product, but kept the product and asked for a reduction in the price.

Bijoux Company uses a perpetual inventory system. Its bookkeeper properly 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, ______. (Check all that apply.)

net income will be too high total assets will be too high

The Inventory account may be credited for ______.

purchase returns and allowances

Cost of goods sold equals beginning inventory plus _______ minus ending inventory.

purchases

Match the financial statement line item with the appropriate description.

Inventory: Current asset on the balance sheet available for sale Sales Revenue: Selling price times the quantity sold Cost of Goods: Sold Cost times the quantity sold Gross Profit: A subtotal on the income statement and is the amount earned from adding value to the inventory sold

Service companies sell services rather than _______.

goods

Breyer Company bought inventory from Solar Company, FOB destination. On December 31, the last day of the accounting year, the goods were on a truck owned by Common Carrier, Inc., and not expected to arrive until January 2. Which company should include these goods in its December 31 inventory?

Solar

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

liabilities will be overstated assets will be overstated