Accounting Exam 2
A company has the following inventory data: July 1 Beginning inventory is 20 units at $20 per unit July 7 Purchase 70 units for $21 per unit July 22 Purchased 10 units at $22 per unit A physical count of merchandise inventory on July 31 reveals that there are 25 units on hand. Using the FIFO inventory method and a periodic inventory system, the amount allocated to cost of goods sold for July is $1,485 $1,540 $1,555 $1,505 $1,585
$1,555 Solution: Goods available for sale is $2,090 (100 units) Ending inventory = 25 units Cost of goods sold = goods available for sale - ending inventory = 100 units - 25 units = 75 units Using FIFO & periodic, the cost of goods sold includes the oldest 75 units and ending inventory includes the 25 newest units. Cost of goods sold = 20 units at $20/unit + (75 units - 20 units) x $21/unit = $400 + 1,155 = $1,555
On May 12, a company sold merchandise on account to a customer for $2,000 with terms 2/10, n/30. On May 18, the customer returns merchandise worth $200. On May 24, the customer pays the company the balance due. What is the amount of cash received by the company on May 24? $1,766 $2,000 $1,800 $1,760 $1,770
$1,800 The amount received on May 24 is $1,800. Because payment is not made within the discount period of 10 days, the amount received is $1,800 ($2,000 less the returned $200) with no discount.
At the start of the year, a company's Allowance for Doubtful Accounts had a debit balance of $31,000. During the year, it had credit sales of $2,300,000. It also wrote-off $80,000 of uncollectible accounts receivable during the year. Past experience indicates that the allowance should be 6% of the balance in receivables. If the accounts receivable balance at December 31 was $300,000, what is the bad debt expense for the year? $138,000 $100,000 $31,000 $129,000 $67,000
$129,000 Bad debt expense = Ending accounts receivable times percent uncollectible minus the subtotal balance in the allowance Bad debt expense = ($300,000 x 6%) + (31,000 + 80,000) = $129,000 Note: the allowance had a $31,000 debit balance that was debited by $80,000 producing a $111,000 debit balance, and the allowance needs to have a $18,000 credit balance. The adjustment should be $129,000.
Sales revenue is $1,000,000, cost of goods purchased is $620,000, beginning inventory is $60,000, and cost of goods sold is $550,000. How much is ending inventory? $130,000 $10,000 $90,000 $60,000 $0
$130,000 Solution: Beginning inventory + Purchases - Ending inventory = Cost of goods sold 60,000 + 620,000 - Ending inventory = 550,000 Ending inventory = 60,000 + 620,000 - 550,000 = 130,000
A company has three categories of inventory in stock: Category Cost Market value Pine $57,000 $50,000 Maple 40,000 37,000 Walnut 80,000 86,000 Apply the lower of cost or market rule to determine the company's ending inventory. $167,000. $173,000. $177,000. $170,000. $175,000.
$167,000.
A company has an ending accounts receivable balance of $900,000 and estimates that uncollectible accounts will be 2% of its accounts receivable balance. If the Allowance for Doubtful Accounts has a credit balance of $2,000 prior to year-end adjustment. What will be the balance of the Allowance for Doubtful Accounts after year-end adjusting entries have been recorded? $18,000 credit balance $20,000 credit balance a zero balance $18,000 debit balance $20,000 debit balance
$18,000 credit balance At the end of the period, accounts receivable has a balance of $900,000 (i.e., given). The Allowance for Doubtful Accounts should be adjusted so that is will have a credit balance equal to $18,000 (i.e., 2% x $900,000).
A company has the following: Units Cost per unit Dec. 1, Beginning balance 40 $41 Dec. 14, Purchase 60 $42 Dec 21, Purchase 55 $43 The company sold 100 units at $80 each and has a tax rate of 20%. Assuming that a periodic inventory system is used and operating expenses are $1,200, what is the company's after tax net income using LIFO? (rounded to whole dollars) $2,583 $3,745 $3,145 $2,036 $2,545
$2,036 Solution: Using periodic LIFO, cost of goods sold includes the last inventory purchased (i.e., the newest inventory). Sales revenue = 100 x $80 = $8,000 Cost of goods sold = (55 x $43) + [(100 - 55) x $42] = $2,365 + 1,890 = $4,255 Gross profit = Sales revenue - cost of goods sold = $8,000- $4,255 = $3,745 Net income before taxes = 8,000 - 4,255 - 1,200 = 2,545 Net income = 2,545 x (100% - 20%) = 2,036
A company has the following data: Dec. 1 Beginning inventory is 25 units at $205 per unit Dec. 5 Purchased 120 units for $220 per unit Dec. 21 Purchased 60 units for $215 per unit The company sold 120 units in December. What is the company's cost of goods sold using LIFO and a periodic inventory system? $26,100 $18,400 $26,025 $22,400 $18,325
$26,100 Solution: Goods available for sale is 205 units (i.e., 25 + 120 + 60 = 205 units) The company sold 120 units (i.e., given) Ending inventory = 85 units (i.e., 205 - 120 = 85 units) Using LIFO & periodic, the cost of goods sold includes the newest 120 units and ending inventory includes the 85 oldest units. Cost of goods sold = (60 x $215) + [60 x $220] = $26,100
Anderson Inc. sells $900 of merchandise on account to a customer with credit terms of 2/10, n/30. If the customer pays by check within the discount period what is the amount of the customer's check? $840 $882 $810 $900 $898
$882 The discount associated with terms 2/10 for a sale of $900 is (i.e., 2% x $900 = $18). Because the customer pays within the discount period, the customer pays the invoice price minus the discount which equals $882 (i.e., $900 - 18 = $882). The company would record the customer's cash payments with the following accounts debited and credited: Debit: Cash for $882 Debit: Sales Discounts for $18 Credit Accounts receivable for $900
What is the underlying rationale for the lower-of-cost-or-market rule? The historical cost principle The economic entity assumption The materiality constraint Going concern assumption Conservatism
Conservatism Solution: Conservatism dictates the lower-of-cost-or-market inventory valuation. Inventory that has not yet sold has not reached revenue recognition. In simple terms, conservatism means that accounting rules are designed to report assets, income, etc. on a conservative basis—that financial reports should not overstate a company assets, profits, etc. The lower-of-cost-or-market principle avoids overstating ending inventory on a company's balance sheet.
A company uses the periodic inventory method and the beginning inventory is overstated by $1,000 because the ending inventory in the previous period was overstated by $1,000; the ending inventory for this period is correct. The amounts reflected in the current end of the period balance sheet are assets are overstated and stockholders' equity is correct. None of these assets are correct and stockholders' equity is correct. assets are understated and stockholders' equity is understated. assets are overstated and stockholders' equity is overstated.
assets are correct and stockholders' equity is correct. Solution: In the periodic inventory system, cost of goods sold is computed at the end of the period (rather than tracked day-by-day as done in a perpetual inventory system). The periodic inventory system uses a formula to compute cost of goods sold: Beginning inventory plus purchased minus ending inventory = cost of goods sold The accuracy of cost of goods sold depends on the accuracy of the beginning and ending physical counts of inventory. Sometimes, a portion of inventory is not counted and inventory is understated. At other times, some inventory may be counted twice resulted in inventory being overstated. Regardless of over- versus under-stating inventory, errors in the amount of inventory results in errors in cost of goods sold. For example, an overstatement of beginning inventory adds too much when computing cost of goods sold, and cost of goods sold becomes overstated. The next effect is that too much cost of goods sold is subtracted from revenue to compute gross profit making gross profit understated (and making net income understated). However, Retained Earnings has the correct balance because it was overstated in the prior year due to overstated ending inventory in the prior year and this year too little income was closed to retained earnings. Recall that an error in ending inventory in one year will have a reverse effect on net income in the next accounting period.
A company 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? 75% 50% 20% 25% 33%
25% Solution: Gross profit = Net sales - Cost of goods sold Gross profit = $400,000 - 300,000 = $100,000 Gross profit rate = Gross profit/Net sales Gross profit rate = $100,000/$400,000 = 0.25 or 25%
The financial statements of a company reports net sales of $500,000 and its cost of goods sold is $150,000. Its accounts receivable of $80,000 and $40,000 at the beginning of the year and end of year, respectively. Its average inventory is $55,000. What is the average collection period for accounts receivable in days (rounded)? 86.9 days 40.2 days 43.8 days 29.2 days 57.9 days
43.8 days Accounts receivable turnover = 500,000/[(80,000 + 40,000)/2] = 8.333 Average collection period = 365/8.333 = 43.80
A company has the following: 2022 2021 Ending inventory $32,650 $30,490 Cost of goods sold 255,250 261,300 Sales 520,000 560,000 Net Income 50,000 40,000 What is the company's inventory turnover for 2022? (rounded) 7.8 times 7.6 times 8.1 times 6.9 times 0.1 times
8.1 times Solution: Inventory turnover = Cost of goods sold/average inventory Inventory turnover = $255,250/[($32,650 + $30,490)/2] = 8.085
At December 31, Moore Company's inventory records indicated a balance of $360,000. Upon further investigation it was determined that this amount included the following: (1) $56,000 in inventory purchases made by Moore shipped from the seller December 28 terms FOB destination, but not due to be received until January 3. (2) $24,000 in inventory purchases made by Moore shipped from the seller December 28 terms FOB shipping point, but not due to be received until January 2. (3) $8,000 in goods sold by Moore with terms FOB shipping point on December 28. The goods are not expected to reach their destination until January 5. (4) $9,000 in goods sold by Moore with terms FOB destination on December 28. The goods are not expected to reach their destination until January 4. (5) $13,000 of goods received on consignment from Dollywood Company. What is Moore's correct ending inventory balance at December 31? $327,000 $351,000 $314,000 $283,000 $282,000
$283,000 Solution: Do not include the following in inventory: 1. FOB destination purchases not yet received (i.e., $56,000) 2. FOB shipping point goods sold and shipped (i.e., $8,000) 3. Goods held on consignment (i.e., $13,000). Ending inventory = $360,000 - 56,000 - 8,000 - 13,000 = $283,000
Using the percentage-of-receivables method for recording bad debt expense, estimated uncollectible accounts are $30,000. If the balance of the Allowance for Doubtful Accounts is $4,000 debit before adjustment what is the balance of the Allowance for Doubtful Accounts after adjustment? $34,000 $0 $4,000 $26,000 $30,000
$30,000 Solution: After the year-end adjusting entry, the allowance for doubtful accounts will equal the estimated uncollectible accounts which is given as $30,000.
A company's accounting records show the following account balances at the end of the year. Purchase Discounts , $5,100 Freight-In, $9,300 Freight-Out, $6,900 Purchases, $350,010 Beginning Inventory, $23,400 Ending Inventory, $30,800 Purchase Returns and Allowances, $4,600 Using the periodic system, the cost of goods sold is $344,410. $342,210. $361,610. $335,310. $337,510.
$342,210. Solution: Beginning inventory, $23,400 Purchases, $350,010 Less: Purchase returns and allowances, $4,600 Less: Purchase discounts, $5,100 Freight-In, $9,300 Less: Ending inventory, $30,800 Cost of goods sold, $342,210
A company uses LIFO. At the beginning of the current year its inventory was $300,000, and at the end of the current year its inventory is $340,000. At the start of the year its LIFO reserve was $10,000 and at the end of the year its LIFO reserve is $15,000. The company operates in an inflationary environment. If the company used FIFO instead of LIFO, its ending inventory would be $355,000. $325,000. $315,000. $340,000. $285,000.
$355,000. Solution: The LIFO reserve is the difference between inventory using LIFO and inventory using FIFO. If the company operates in an inflationary environment (i.e., rising prices), then the LIFO reserve is a positive number, add the LIFO reserve to LIFO inventory to determine the company's FIFO inventory. FIFO ending inventory = LIFO ending inventory + LIFO reserve = $340,000 + 15,000 = $355,000
The maturity value of a $40,000, 9%, 30-day note receivable dated July 3 is $300. $44,000. $43,600. $40,000. $40,300.
$40,300. Maturity value = Principal plus interest Maturity value = Principal + Principal x interest rate x time Notes stated in terms of days measure time as the number of days divided by 360$40,000 + ($40,000 x .09 x 30/360) = $40,300
A company sold merchandise for $95,000. Returns from customers totaled $2,000. If the company's gross profit rate is 40%, what is the company's cost of goods sold? $37,200 $57,000 $38,000 $118,200 $55,800
$55,800 Solution: Net sales = Sales - Sales returns & allowances - Sales discounts Net sales = $95,000 - 2,000 = $93,000 Gross profit rate = Gross profit/Net sales 0.40 = Gross profit/$93,000 Gross profit = 0.40 x $93,000 = $37,200 Gross profit = Net sales - cost of goods sold $37,200 = $93,000 - cost of goods sold Cost of goods sold = $93,000 - 37,200 = $55,800
At the start of the year, a company's Allowance for Doubtful Accounts had a credit balance of $31,000. During the year, it had credit sales of $2,300,000. It also wrote-off $80,000 of uncollectible accounts receivable during the year. Past experience indicates that the allowance should be 6% of the balance in receivables. If the accounts receivable balance at December 31 was $300,000, what is the bad debt expense for the year? $100,000 $31,000 $67,000 $138,000 $18,000
$67,000 Bad debt expense = Ending accounts receivable times percent uncollectible minus the subtotal balance in the allowance Bad debt expense = ($300,000 x 6%) - (31,000 - 80,000) = $67,000 Note: the allowance had a $31,000 credit balance that was reduced by $80,000 producing a $49,000 debit balance, and the allowance needs to have a $18,000 credit balance.
A company has the following: Beginning inventory, $45,000 Ending inventory, $55,000 Net sales, $2,200,000 Cost of goods sold, $1,200,000 Net income, $100,000 What is its days' in inventory? 11.4 11.6 32 15.2 12.5
15.2 Solution: Inventory turnover = cost of goods sold divided by average inventory Inventory turnover = $1,200,000/[(55,000 + 45,000)/2] = 24.00 Days in inventory = 365/inventory turnover Days in inventory = 365/24 = 15.2 days in inventory
A company purchased merchandise with an invoice price of $2,000 and credit terms of 1/10, n/30. Assuming a 360 day year, what is the implied annual interest rate inherent in the credit terms? 36% 12% 18% 16% 2%
18% Solution: The company buying merchandise can wait 10 days and still receive a 1% 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 1% interest. An interest rate of 1% in 20 days is equivalent to an interest rate of 18% in 360 days (i.e., 1% x 360/20). Alternatively:Interest = Principal x Interest rate x Time$10 = $1,000 x Interest rate x (30-10)/360 Solving for the interest rate: Interest rate = [360/(30-10)] x $10/$1,000 = 0.18 (i.e., 18%)
A company uses a perpetual inventory system. It purchased $10,000 of merchandise with terms of 2/10, n/30. It also must pay a $200 shipping charge. The company paid for both the merchandise and the shipping charge nine days after their invoice date. Which of the following is part of the journal entry the company records when it pays the shipping charge? A credit to Accounts Payable for $200 A debit to Freight-out for $200 A debit to Cash for $200 A debit to Freight-in for $200 A debit to Inventory for $200
A debit to Inventory for $200 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 $200 and a credit to cash for $200.
In December, a company sold merchandise on account for $300 with terms 1/15, n/30. It uses the percentage of receivables basis for estimating uncollectible accounts at year-end. On May 1 of the next year, the company determines that it will not collect the amount due from the customer. Prepare the journal entry to record the write-off on May 1. Accounts Receivable 300 Allowance for Doubtful Accounts 300 Allowance for Doubtful Accounts 297 Accounts Receivable 297 Bad Debts Expense 300 Allowance for Doubtful Accounts 300 Allowance for Doubtful Accounts 300 Accounts Receivable 300 Bad Debts Expense 300 Accounts Receivable 300
Allowance for Doubtful Accounts 300 Accounts Receivable 300 Solution: Accrual accounting requires the allowance method of accounting for bad debts which involves estimating uncollectible accounts at the end of each period. This method provide a better matching of revenues and expenses than the direct write-off method of accounting for uncollectible accounts. Several alternative procedures exist for estimating uncollectible accounts. Under the percentage of receivables basis, management establishes a percentage relationship between the amount of receivables and expected losses from uncollectible accounts. Under the allowance method, Bad Debts Expense is estimated and recorded at the end of the period as an adjusting entry. Simultaneously, the Allowance for Doubtful Accounts balance is adjusted to reflect the estimated portion of Accounts Receivable not expected to be collected. Writing-off a specific customer's account receivable requires a reduction in the Accounts Receivable. Writing-off an account under the allowance method requires a decrease in the amount set aside in the Allowance for Doubtful Accounts. The adjusting journal entry includes a debit to the Allowance for Doubtful Accounts and a credit to Accounts Receivable for the amount written-off. Since the customer did not pay within the discount period, the customer's opportunity for a discount had been forfeited. Thus, the full invoice price was the amount due, and it is the amount written-off by the company.
Which one of the following is not a method used by companies to accelerate cash receipts? These are all methods of accelerating cash receipts Selling receivables to a factor Allowing customers to settle their accounts by issuing notes Offering discounts for early payment Accepting national credit cards for customer purchases
Allowing customers to settle their accounts by issuing notes Management can accelerate the collection of cash from receivables by selling its receivables, by allowing customers to pay with national (bank) credit cards, and by offering discounts for early payment.
A company loaned $30,000 to a debtor on May 1, at 10% interest for 3 months. What adjusting entry should the company record on June 30 before preparing the financial statements on June 30? Debit Cash for $30,000 and credit Interest Revenue for $30,000 Debit Interest Receivable for $250 and credit Interest Revenue for $250 Debit Interest Expense for $750 and credit Interest Payable for $750 Debit Interest Receivable for $500 and credit Interest Revenue for $500 Debit Interest Expense for $250 and credit Interest Payable for $250
Debit Interest Receivable for $500 and credit Interest Revenue for $500 Interest earned is calculated by multiplying the face value (i.e., principal) times the interest rate times the portion of the year that has passed since the note was issued. If the note is described in terms of days (e.g., 90-day note), count the number of days of accrued interest. If the note is described in terms of months (e.g., 3-month note), count the number of months of accrued interest. Interest = Principal x interest rate x time = $30,000 x 10% x 2/12 = $500 Remember, all interest rates are annual interest rates unless designated otherwise. Baker Co. is the creditor; it loaned money to the other company. Baker Co. records increases to Interest Receivable and Interest Revenue.
A corporation uses the perpetual inventory system. On May 1, it purchased merchandise on account for $10,000 with terms 2/10, n/30. It returns merchandise with an invoice price of $1,000 to the seller on May 7. On May 10, it pays for the merchandise it retains. How would the corporation record its return of merchandise on May 7? Debit accounts payable for $1,000; credit purchase returns and allowances for $1,000. 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 inventory for $1,000. The company purchasing merchandise uses the perpetual inventory system. When it purchases inventory, it should debit the inventory account for the invoice price of merchandise purchased, and when it returns merchandise it credits the inventory account for the invoice price of the portion of the merchandise returned to the seller.
Which one of the following is not one of the principles of managing accounts receivable? Determining from which vendor credit should be requested Monitoring collections Evaluating the liquidity of receivables Establishing a payment period Accelerating cash receipts from receivables when necessary
Determining from which vendor credit should be requested Managing accounts receivable involves five steps. These include (1) determining to whom to extend credit, (2) establish a payment period, (3) monitor collections, (4) evaluate the liquidity of receivables, and (5) accelerate cash receipts from receivables when necessary. The one that is considered the most critical is deciding on who gets credit and who doesn't. Requesting credit from a vendor is a concern for dealing with accounts payable rather than accounts receivable.
Two companies report the same cost of goods available for sale but each employs a different inventory costing method. If the price of goods purchased as inventory has increased during the period, then the company using LIFO will have the lowest cost of goods sold. FIFO will have the lowest ending inventory. LIFO will have the highest net income. None of these FIFO will have the highest retained earnings.
FIFO will have the highest retained earnings. Solution: First-in, first-out (FIFO) considers the oldest inventory to be sold. In contrast, last-in, first-out (LIFO) considers the newest inventory to be sold. Increasing prices for inventory suggest that FIFO sells the oldest and cheapest inventory producing the lowest cost of goods sold, the highest net income and retained earnings, and the highest ending inventory. In contrast, increasing prices for inventory suggest that LIFO sells the newest and most expensive inventory producing the highest cost of goods sold, the lowest net income and retained earnings, and the lowest ending inventory.
Indicate which one of the following would not likely appear on both a multi-step income statement and a single-step income statement. Gross profit None of these would appear on both types of income statement Cost of goods sold All of these would appear on both types of income statement Net income
Gross profit Two formats for the income statement include: (1) single-step income statement and (2) multi-step income statement. Gross profit is reported exclusively on the multi-step income statement; gross profit is sales minus cost of goods sold. Many companies.that sell inventory use the multi-step income statement to highlight gross profit. Some companies that sell inventory continue to rely on the single-step income statement, so some companies that have cost of goods sold report cost of goods sold.
Which of the following is a component of the operating cycle of a merchandising company? Pay rent on a warehouse where inventory is stored Pay for inventory Pay interest on a loan Pay a dividend All of these are components of the operating cycle of a merchandising company
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? No inventory systems Periodic inventory system Perpetual inventory system Single entry inventory system Double entry inventory system
Perpetual inventory system Solution: Under the perpetual inventory system, cost of goods sold is determined with each sale.
Which of the following is an inventory account? Cash Equipment All of these are inventory accounts Raw materials Accounts receivable
Raw materials Solution: Equipment is not an inventory account. Equipment consists of items used in the production of income that are not held for sale. Inventory can include raw materials, work in process, and finished goods. Raw materials is an inventory account that contains the cost of materials that have not yet been started into the production process. Work in process is an inventory account that contains the cost of goods started, but not completed. Finished goods is an inventory account that contains the cost of goods completed that are ready to sell.
A company uses the allowance method for uncollectible accounts. Last year, a customer purchased $100 of services on account from the company. In the current year, the company is notified that the customer is bankrupt and will not pay the company the amount owed. What journal entry does the company record when it is notified that the customer will not pay? debit Allowance for Doubtful Accounts and credit Bad Debt Expense. debit Bad Debt Expense and credit Cash. debit Allowance for Doubtful Accounts and credit Accounts Receivable. debit Bad Debt Expense and credit Allowance for Doubtful Accounts. debit Bad Debt Expense and credit Accounts Receivable.
debit Allowance for Doubtful Accounts and credit Accounts Receivable. When using an allowance method for uncollectible accounts, a company records a year-end adjusting entry by debiting Bad Debt Expense and crediting Allowance for Doubtful Accounts. When a specific customer's account is identified as uncollectible, the company reduces the accounts receivable by crediting that account and it reduces the Allowance for Doubtful Accounts by debiting it.
A company accepted a customer's Visa card as payment for $900 of merchandise it sold to the customer. The bank that issued the credit card charges a 4% credit card fee. The company's journal entry to record this transaction will include debits to Cash $864 and Service Charge Expense $36. debits to Accounts Receivable $864 and Service Charge Expense $36. debits to Cash $864 and Interest Expense $36. debits to Accounts Receivable $900. a credit to Sales Revenue for $864.
debits to Cash $864 and Service Charge Expense $36. The sale revenue is $900, but the retailer incurs a 4% fee so it collects 96% of the revenue. It collects $864. It also incurs a $36 service charge fee as an expense.
If a company collects from a customer after the customer's account has been written off as uncollectible, the company is said to recover the uncollectible account. When a company uses accrual basis accounting and it recovers an uncollectible accounts, the recovery will decrease the company's total assets in the period it is collected. requires the company retroactively restate its prior period's income at a lower amount than originally reported. requires the company retroactively restate its prior period's income at a higher amount than originally reported. does not affect the company's total assets in the period it is collected. will increase the company's total assets in the period it is collected.
does not affect the company's total assets in the period it is collected. Solution: Under the allowance method for uncollectible accounts, a company estimates its uncollectible accounts receivable at year-end and records an adjusting journal-entry to adjust the Allowance for Doubtful Accounts to its proper balance and to record the appropriate amount of bad debt expense. In the following period when a specific customer's account becomes identified as uncollectible, the company reduces its accounts receivable by that amount (i.e., the company writes-off that customer's account receivable) and it reduces the Allowance for Doubtful Accounts by debiting that account. Occasionally, a customer whose account had been previously written-off pays the company. When such a recovery occurs, the company records two journal entries. First, it reverses the write-off of that customer's account by debiting Accounts Receivable and crediting the Allowance for Doubtful Accounts. Second, the company debits Cash by the amount collected from the customer and it credits Accounts Receivable. The net effect of these two recovery-related journal entries is to merely exchange balances between asset accounts (i.e., total assets are neither increased nor decreased). Neither of these two journal entries affects net income.
In a perpetual inventory system, cost of goods sold is determined on a monthly basis. on an annual basis. each time a sale occurs. on a daily basis. each time inventory is acquired.
each time a sale occurs.
A company recorded the following events involving a recent purchase of inventory:Received goods for $25,000, terms 2/10, n/30.Returned $800 of the shipment for credit.Paid $200 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 increased by $25,000. increased by $23,916. increased by $25,206. increased by $24,500. increased by $24,116.
increased by $23,916. The company uses the perpetual inventory system. Every transaction that increases or decreases inventory (e.g., purchases, sales, returns, etc.) immediately increases or decreases the company's inventory account. The cost of inventory includes its invoice price minus (i) inventory returned to the seller, (ii) allowances granted by the seller, and (iii) discounts taken by the seller. Also, the cost of shipping increases the cost of the inventory when the buy pays the shipping and uses the perpetual inventory system. The company's inventory changed as follows: [($25,000 - 800) x 98%] + $200 = $23,916.
A company uses a perpetual inventory system to record the following events involving a recent purchase of inventory: On July 1, it purchased merchandise for $50,000, terms 1/10, n/30. On July 3, it paid freight costs of $300 on merchandise purchased. On July 6, it returned $1,200 of merchandise to the supplier. On July 9, it paid the amount due to the supplier. As a result of these events, the company's inventory increased by $48,312. increased by $48,609. increased by $48,601. increased by $48,612. increased by $49,100.
increased by $48,612. [(Purchase - purchase returns) x (100% - discount percentage] [(50,000 - 1,200) x 99% + 300 = 48,612
