ACCOUNTING MIDTERM 2

A new company purchased three merchandise inventory items: first purchase $60; second purchase $40; third purchase $50. Using FIFO costing, if the company sells two units for $200, what is the gross profit for the period?

Under the First In First Out (FIFO) inventory method, inventory costs are attributed to the first purchased goods in inventory. In this scenario, a new company purchased three merchandise inventory items: first purchase $60; second purchase $40; third purchase $50. Using FIFO costing, the gross profit for the period is $200 - $100 = $100.

The quality of earnings ratio is Select answer from the options below - Correct!

net cash provided by operating activities divided by net income.

Kate would like to shorten the operating cycle at her company, but she is unsure how to do this. She begins brainstorming with her coworkers. Which of the following would be the most likely way to achieve this goal? Select answer from the options below - Correct!

Kate should offer purchase discounts to her customers.

The ________ requires that if companies use ________ for tax purposes, they must also use it for financial reporting purposes.

LIFO conformity rule; LIFO

Companies that use LIFO rather than FIFO as an inventory system must report which value on their financial statements?

LIFO reserve

A physical count of inventory at the end of the accounting period is required under which inventory system(s)?

Periodic system

At year-end, a department store shows a balance in the merchandise inventory account of $2 million and a physical inventory shows there is slightly less than $2 million in merchandise on hand. The beginning inventory was $1,000,000. The department store most likely uses a ________ inventory system.

Perpetual

A company reports Sales Returns and Allowances of $86,000 and Net Sales of $700,000. It also reports Cost of Goods Sold of $370,000. Find the company's Sales and Gross Profit. Select answer from the options below

Sales - Sales Returns and Allowances = Net Sales; Restated to solve for Sales: Net Sales + Sales Returns and Allowances = Sales. Therefore sales equals $786,000 ($700,000 + $86,000).Net Sales - Cost of Goods Sold = Gross Profit. Therefore gross profit is $330,000 ($700,000 - $370,000).

________ has a normal credit balance.

Sales revenue

Smith Company has the following information related to its inventory and sales volume for the most recent month:Assuming a 30% tax rate, Smith's net income for the month will be _________ if it uses LIFO instead of FIFO.

Sales revenue is $10,000 (500 × $20), regardless of the inventory cost flow method used. Cost of goods sold under FIFO is $5,000 (500 × $10), while cost of goods sold under LIFO is $4,200 {(400 × $8) + (100 × $10)}. Gross profit is $800 higher when LIFO is used since the cost of goods sold is lower by the same amount. Subtracting $240 in taxes ($800 × 30%) from the $800 results in a $560 higher net income.

The Daily Grind sells coffee makers. Its inventory of coffee makers without timers cost $20,000 and has a net realizable value of $10,000. Its inventory of coffee makers with timers cost $35,000 and has a net realizable value of $35,000. What amount should be reported for Daily Grind's inventory?

The net realizable value is the amount of revenue a company expects to make from the sale of an asset. As such, Daily Grind should report ($10,000 + $35,000) = $45,000 in inventory.

Joanie's Caterers bought 10 green tablecloths from Fabric Town for a reception planned for one of their clients. When the package arrived, there were 10 red tablecloths included, but no green. If Joanie's Caterers decides to keep the tablecloths, then

Fabric Town may grant a purchase allowance, which will reduce the caterer's accounts payable.

Net sales less cost of goods sold equals Select answer from the options below

Gross profit

________ is shown on a multiple-step but not on a single-step income statement.

Gross profit

Gadget Corp. recently reported sales revenue of $775,000, gross profit of $350,000, and net income of $64,000 for its most recent fiscal year. What were the firm's operating expenses for the year?

$350,000 - 64,000 = $286,000.

If net sales are $600,000 and gross profit is $412,800, what is the gross profit rate?

The gross profit rate is calculated using the following formula: Gross Profit Rate = Gross Profit / Net Sales. Using this formula, the Gross Profit Rate is 68.8% ($412,800 / $600,000).

Lucky Inc. reported sales revenue of $385,000, operating expenses of $65,000, and a net loss of $23,000 for the most recent fiscal year. What amount did Lucky report for cost of goods sold?

In this scenario, you would first solve for gross profit. The calculation for gross profit is: Operating Expenses - Net Loss = Gross Profit or $65,000 - $23,000 = $42,000. Once you've calculated the gross profit, you can solve for the cost of goods sold. The calculation for cost of goods sold is: Sales Revenue - Gross Profit = Cost of Goods Sold or $385,000 - $42,000 = $343,000. Lucky Inc. reported a cost of goods sold of $343,000.

Rollins Technology is determining ending inventory. In the inventory process, Rollins inadvertently miscategorized a $9,600 shipment of FOB destination goods in transit to a customer as FOB shipping point. What should Rollins do to correct this error? Select answer from the options below

It should add $9,600 to their inventory count.

Lockman Company has the following information related to its inventory and sales volume for the most recent month:Assuming a 30% tax rate, Lockman's net income for the month will be ________ if it uses FIFO instead of LIFO.beg inventory- 500 units 10 dollars per unitpurchases- 400 units 20 dollars per unitsales for the month - 600 units 30 dollars per unitA$3,000 lowerB$2,100 higherC$2,100 lowerD$1,500 higher

Sales revenue is $18,000 (600 × $30), regardless of the inventory cost flow method used. Cost of goods sold under FIFO is $7,000 {(500 × $10) + (100 × $20)}, while cost of goods sold under LIFO is $10,000 {(400 × $20) + (200 × $10)}. Gross profit is $3,000 higher when FIFO is used since cost of goods sold is lower by the same amount. Subtracting $900 in taxes ($3,000 × 30%) from the $3,000 results in a $2,100 higher net income.

Davidson Electronics has the following: If Davidson has 7,000 units on hand at December 31, the cost of ending inventory under the average-cost method is Select answer from the options below

The formula for the Weighted Average Unit Cost is: Cost of Goods Available for Sale / Total Units Available for Sale. Davidson Electronics has (5,000 x $8) + (15,000 x $10) + (20,000 x $12) = $430,000 in goods available for sale & (5000 + 15,000 + 20,000) = 40,000 units available for sale. As a result, the Weighted Average Unit cost is: ($430,000 / 40,000) = $10.75. As a result, Davidson Electronic's cost of ending inventory for 7,000 units is: (7,000 x $10.75) = $75,250.

Which of the following companies is most likely to have lost sales due to an inventory shortage? Company 1 has an inventory turnover of 46.3. Company 2 has an average days in inventory of 18.9 days. Company 3 has an inventory turnover of 5.4. Company 4 has an average days in inventory of 32.7.

The shorter the average days in inventory (i.e., the higher the inventory turnover), the more likely the company will have lost sales due to inventory shortage. Company 1 has days in inventory of 365/46.3 = 7.9 days. Company 2 has days in inventory of 18.9 days. Company 3 has days in inventory of 365/5.4 = 67.6 days. Company 4 has days in inventory of 32.7 days. Therefore, the company with the lowest days in inventory is Company 1.

What is one primary difference between determining cost of goods sold with a periodic system rather than a perpetual system? Select answer from the options below - Correct!

With a periodic system, cost of goods sold is calculated only once at the end of the period. In contrast, with a perpetual system, cost of goods sold is recorded each time a sale is made.

Where are the freight costs to sell goods included

as a selling expense

Your answer is correct. What are raw materials?

basic goods that will be used in production but have not yet been placed into production

When can sales revenues be recorded?

before cash is collected

How do you calculate the cost of goods available for sale?

by adding beginning inventory to cost of goods purchased

Inexperienced employees may include ________ as ________, resulting in an overstatement of assets.

consigned goods; inventory Consigned goods are goods that are being held for another company to be sold for a fee. Therefore, an inexperienced employee may include consigned goods as inventory, resulting in an overstatement of assets.

When goods are shipped ________, title passes to the buyer whenSelect answer from the options belowFOB Destination; the seller manufactures the goods.FOB Shipping Point; the carrier accepts goods from the seller.FOB Shipping Point; the carrier accepts goods from the buyer.FOB Destination; the carrier accepts goods from the seller. Save for Later Submit Answer

f.o.b. shipping point, title passes to the buyer when the seller delivers the goods to a common carrier.

Assume that a company uses a periodic inventory system and has these account balances: Purchases $700,000, Purchase Returns and Allowances $30,000, Purchase Discounts $14,000, and Freight-in $35,000. Determine net purchases and cost of goods purchased.

net purchases: $656,000, cost of goods purchased: $691,000 Net Purchases are comprised of purchases, less purchase returns and allowances, less purchase discounts. In this example, net purchases are $656,000 ($700,000 - $30,000 - $14,000). The cost of goods purchased equals net purchases plus freight-in. In this example, cost of goods purchased is $691,000 ($656,000 + $35,000).

A company makes an entry to record a sale. Then it debits Cost of Goods sold and credits Inventory. Which inventory system is the company using?

perpetual inventory system

Regardless of which inventory method a company chooses to implement, what control is used periodically to maintain accurate records?

physical count

When purchasing inventory, which of the following are considered contra purchase items? Select answer from the options below

purchase returns and allowances

What is the transaction called when a customer agrees to retain defective merchandise because the seller is willing to reduce the selling price? Select answer from the options below - Correct!

sales allowance

Millennium Motors is a luxury car dealership. Which method of inventory costing would they most likely use?

specific identification. The specific identification valuation method assigns costs to individual inventory items. Since luxury cars can be distinguished individually, Millennium Motors is most likely to use the specific identification costing method.