ACC 210 Learnsmarts Chapter 6

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 for $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 _____.

$1,000 - $10 + $100 = $1,090

Beginning inventory was $5,000. During the month, the company purchased an additional $25,000 of inventory. At the end of the month, ending inventory was $10,000. Cost of Goods sold equal _____.

$20,000

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

$20,000

Bijoux Company has a Net Sales of $40,000; Beginning Inventory of $5,000; Purchases of $25,000 and Ending Inventory of $7,000. Cost of Goods Sold equals _____.

$23,000

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

Freight-in with terms FOB shipping point

Gross Profit equals _____.

Net Sales minus Cost of Goods Sold

X Company, which uses a perpetual inventory system, sold $2,000 of merchandise on account with credit terms 2/10, n/30. If the customer pays within the disocunt period and takes the discount, X will record a journal entry that includes _____. a. a credit to Accounts Receivable of $1,960 b. a debit to Sales Discounts of $40 c. a credit to Sales Discounts of $40 d. a debit to Cash of $2,000 e. a debit to Cash of $1,960 f. a credit to Accounts Receivable of $2,000

b, e, & f

In a perpetual system, the entry to record a purchase of merchandise on account includes a _____. (Check all that apply.) a. credit to Inventory b. debit to Accounts Payable c. credit to Accounts Payable d. debit to Accounts Receivable e. debit to Inventory f. credit to Accounts Receivable

c & e

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 costs of goods sold, its gross profit percentage will _____.

decrease

Sales discounts should appear in the financial statements as a(n) _____.

deduction from sales

The seller of inventory pays for shipping if the shipping terms are FOB _____. destination

destination

Which of these will decrease the inventory account? (Check all that apply.) a. paying cash for inventory previously purchased on account b. purchasing inventory on account c. collecting cash for inventory previously sold on account d. purchasing inventory for cash e. selling inventory for cash f. selling inventory on account

e & f

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

false

Merchandisers record revenue when they _____.

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

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?

(20,000 + 81,000 - 24,000 = 77,000) (160,000 - 77,000 / 160,000 = 52%) 52%

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

Accounts Payable; Cash

When a company provides $1,000 of service to a customer on account with payment terms of 2/10, n/30, the entry it records when it records the sale includes a debit to _____ and a credit to _____.

Accounts Receivable for $1,000; Sales for $1,000

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

What does FOB shipping point mean?

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

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

Inventory

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

Inventory

Gross profit percentage is calculated as _____.

Net sales minus Cost of Goods Sold, then divide by Net sales, and multiply by 100

Under a periodic inventory system, net purchases equal _____.

Purchases + Freight-in - Purchase Returns and Allowance - Purchase Discounts

Net Sales on an income statement equals _____.

Sales Revenue less Sales Returns & Allowances less Sales Discounts

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., and not expected to arrive until January 2. Which company should include these goods in its December 31 Inventory?

Sellar

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

What does the sales discount 2/10, n/30 mean?

You can take a 2% discount if you pay within 10 days, or the full amount is due within 30 days

A multistep income statement is useful to financial statement users because it _____. (Select all that apply.) a. separates income statement items into meaningful components b. provides the amount of resources available to use in the future c. separates cost of goods sold from other operating expenses, which allows the calculation of gross profit

a & c

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.) a. total assets will be too high b. total assets will be too low c. net income will be too high d. net income will be correct e. total assets will be correct f. net income will be too low

a & c

The gross profit percentage measures the percentage of profit earned on each dollar of sales before deducting all expenses other than cost of goods sold. This ratio is used to: (Check all that apply.) a. compare one company with another b. measure the frequency of inventory turnover c. makes comparisons over time d. determine whether a company is collecting its receivables in a timely fashion

a & c

The recording of a company's purchase returns and purchase allowances are similar in that both may result in a(n) _____. (Check all that apply.) a. decrease in Accounts Payable b. increase in Inventory c. decrease in Inventory d. increase in Accounts Receivable e. increase in Accounts Payable

a & c

Using a perpetual inventory system, the effect on the accounting equation of purchasing merchandise on account includes a(n) _____. (Check all that apply.) a. increase in liabilities b. decrease in assets c. increase in assets d. decrease in stockholders' equity

a & c

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.) a. debit to Accounts Payable b. credit to Accounts Receivable c. credit to Inventory d. debit to Purchase Returns e. credit to Cash

a & c

After performing a physical count of inventory at the end of the accounting period, it was discovered that the amount of inventory on hand was less than the accounting records reported. The entry to record this inventory shrinkage includes _____. (Check all that apply.) a. debit to Cost of Goods Sold b. debit to Purchase Discounts c. credit to Cost of Goods Sold d. credit to Inventory e. debit to Inventory f. credit to Purchase Discounts

a & d

In which of these situations would a merchandiser record revenue? (Select all that apply.) a. The obligation has been fulfilled and control of the goods has been transferred to the customer b. Goods were delivered FOB Destination but have not yet arrived at the buyer's place of business c. The customer paid for the good in advance d. Goods were delivered FOB Shipping Point but have not yet arrived at the buyer's place of business

a & d

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, _____. (Select all that apply.) a. liabilities will be overstated b. liabilities will be understated c. stockholders' equity will be overstated d. assets will be overstated e. assets will be understated f. stockholders' equity will be understated

a & d

The journal entry to record the payment within the discount period for goods previously purchased on account causes _____. (Check all that apply.) a. total liabilities to decreased b. total assets to increase c. total stockholders' equity to increase d. total liabilities to increase e. total assets to decrease f. total stockholders' equity to decrease

a & e

Which of the following would be found on the credit side of the Inventory T-account? (Select all that apply.) a. Purchase discounts b. Purchases c. Freight-out d. Beginning balance e. Purchase returns f. Freight-in

a & e

Using a perpetual system, what is the correct journal entry when a customer returns a product that was purchased on account?

a debit to Sales Returns and Allowances and a credit to Accounts Receivable; and a debit to Inventory and a credit to Cost of Goods Sold

To ensure the accuracy of inventory accounted for using a perpetual system, physical counts ______. (Check all that apply.) a. detect booking errors b. are not needed when a perpetual system is used c. detect theft d. detect shrinkage

a, c, & d

In an perpetual system, the entry to record the sales of merchandise to a customer on account would include a _____. (Check all that apply.) a. credit to Inventory b. credit to Accounts Receivable c. credit to Cost of Goods Sold d. debit to Inventory e. debit to Accounts Receivable f. debit to Sales Revenue g. debit to Cost of Goods Sold h. credit to Sales Revenue

a, e, g, & h

Which line item would be found on a merchandiser's income sheet and not on a service firm's? a. supplies b. depreciation expense c. sales revenue d. service revenue e. cost of goods sold f. inventory

c & e

Which of the following are reported on the income statement? (Check all that apply.) a. Inventory b. Goods Available to Sell c. Cost of Goods Sold d. Sales Revenue e. Gross Profit

c, d, & e

Which of the following would be found on the debit side of the Inventory T-account? (Select all that apply.) a. Frieght-out b. Purchase Returns c. Purchases d. Purchase Discounts e. Beginning balance f. Freight-in

c, e, & f

Sales Returns & Allowances is a _____ account and is _____ when goods are returned by customers for a refund.

contra-revenue; debited

Inventory is reported as a(n) _____ on the _____.

current asset; balance sheet only

Inventory is a(n) _____ intended to be _____.

current asset; sold

What are the two stages of accounting for a purchase discount? (Check all that apply.) a. The purchase is first recorded at the discounted amount b. The Accounts Payable account is later reduced by the discounted amount c. The Inventory account is first reduced by the expected discount d. The Inventory account is later reduced if payment is made within the discount period e. The purchase is first recorded at full cost

d & e

The journal entry to record the payment for merchandise previously purchased on account includes a _____. (Select all that apply.) a. credit to Accounts Receivable b. credit to Accounts Payable c. debit to Accounts Receivable d. credit to Cash e. debit to inventory f. debit to Accounts Payable

d & f

The journal entry to record the payment of cash to FedEx for shipping costs for inventory purchased FOB shipping point includes a _____. (Select all that apply.) a. credit to Accounts Payable b. debit Transporation-in Expense c. stockholders' equity to decrease d. debit to inventory e. stockholders' equity to increase f. credit to Cash g. debit to Cost of Goods Sold

d & f

Sales transactions affect the _____.

income statement and the balance sheet

In a perpetual inventory system, the journal entry to record the payment of cash for the shipping costs of purchased merchandise will cause _____.

one asset to increase and another asset to decrease

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

The _____ cycle is a series of activities that the company undertakes to generate sales and ultimately cash.

operating

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

periodic

The operating cycle is a series of activities that the company undertakes to generate _____ and, ultimately, cash.

profit

Inventory consists of _____.

purchase price plus freight-in

Cost of good sold equals beginning inventory plus _____ minus inventory.

purchases

The journal entry to record the payment for merchandise previously purchased on account will cause stockholders' equity to _____.

remain unchanged