accounting test 2 (4-7)

FOB shipping point

seller to buyer, goods are included in inventory when goods are shipped

sales discount

seller's description of cash discount granted to buyers in return for early payment

Used by bank employees to verify signatures on checks.

signature cards

Always yields results that depend on which units sold.

specific identification

Matches the cost of items exactly with the revenues they generate.

specific identification

cost of goods sold

the expense of purchasing and preparing merchandise for sale

Specific Identification

the inventory costing method that identifies the cost of the specific item that was sold

discount period

time period in which a cash discount is available

Lower of Cost or Market (LCM)

A basis whereby inventory is stated at the lower of either its cost or its market value as determined by current replacement cost.

(Allowance method) when an account is written off, JE is

ADA 520 AR 520

Recognizes (matches) current costs with revenues in computing gross profit.

LIFO

Under the conformity rule, companies who use the _____ method for tax reporting, are required by the IRS to also use it in their financial statements.

LIFO

an advantage of the ______cost method is the the cost of goods sold approximates its current cost

LIFO

during a period of regularly rising purchase costs, the method yields the highest reported cost of goods sold amount on the income statement

LIFO

during a period of regularly rising purchase costs, the method yields the lowest income tax expense

LIFO

LIFO

Last in first out rotation system

Which company should include any unsold goods as part of its inventory?

Montoure

when do you layer in FIFO/LIFO and how is it organized?

When there is a sale, and start with Goods purchased --> COGS---> Inventory balance

A bank issues a debit memorandum to notify a depositor of:

a deduction to a depositor's account

merchandiser

a type of business that earns income by buying and selling merchandise

Montoure Co. shipped $13,800 of signed baseball cards to Liverpool. Liverpool agreed to sell the cards for Montoure, but Montoure will retain ownership of the cards until sold. a. Identify the consignor. b. Identify the consignee.

a) Montoure b) Liverpool

ProBuilder reports merchandise sales of $62,000 and cost of merchandise sales of $12,400 in its first year of operations ending June 30, 2017. It makes fiscal-year-end adjusting entries for estimated future returns and allowances equal to 2% of sales, or $1,240, and 2% of cost of sales, or $248. prepare journal entry for future returns and allowances related to sales and cost of sales

a. debit SR&A and credit sales refund payable b. debit inventory returns estimated and credit COGS

The supplementary record providing information on each customer is called the _____.

accounts receivable leger

night deposit made on september 20 after the bank closed

added to bank balance

interest earned on september cash balance in the bank

added to book balance CR to cash

checks written by another depositor but charged against this company's account

addition to bank balance

principal and interest on a note receivable to this company is collected by the bank but not yet recorded by the company

addition to book balance DR to cash

The write off of a specific account does not affect net income

allowance method

requires a company to estimate bad debts expense related to the sales recorded in that period

allowance method

periodic inventory system updates the accounting records...

at the end of the period

outstanding checks

bank, subtraction, no

outstanding deposits

book, addition, no

credit memo on collection of note

book, addition, yes

interest on each balance

book, addition, yes

NSF checks

book, subtraction, yes

bank service charges

book, subtraction, yes

minimum balance charge

book, subtraction, yes

Sold $20,000 of merchandise, which cost $15,000, on MasterCard credit cards. MasterCard charges a 5% fee. (create the general ledger for this)

cash 19,000 credit card exp 1000 sales 20,000 COGS 15,000 inv. 15,000

Carousel Description: Messing Company has an agreement with a third-party credit card company, which calls for cash to be received immediately upon deposit of customers' credit card sales receipts. The credit card company receives 3.5 percent of card sales as its fee. Messing has $4,000 in credit card sales on January 1. Prepare the January 1 journal entry for Messing Company

cash 3860 credit card exp. 140 sales 4000

Sold $5,000 of merchandise, which cost $3,000, on an assortment of bank credit cards. These cards charge a 4% fee. (create the general ledger for this)

cash 4,800 CC exp 200 sales 5,000 COGS 3,000 inv. 3,000

Check No. 919, listed with the canceled checks, was correctly drawn for $889 in payment of a utility bill on June 15. Del Gato Clinic mistakenly recorded it with a debit to Utilities Expense and a credit to Cash in the amount of $898.

cash 9 utilities exp 9

signed by the depositor instructing the bank to pay a specified amount of money to a designated recipient

check

Allowance for Bad Debt (ADA)

contra account (credit based)

merchandise inventory includes

costs to purchase, shipping costs and costs to prepare to for sale

checks written by the company and mailed to payees on September 30

deduction from bank balance

bank service charge for september

deduction from book balance CR to cash

check written against the company's account and cleared by the bank; erroneously not recorded by the company's record keeper

deduction from book balance CR to cash

special bank charge for collection of note in part 8 on this company's behalf

deduction from book balance CR to cash

NSF check from customer is returned on September 25 but not yet recorded by this company.

deduction to book balance CR to cash

sales and any bad debt expense are usually not recorded in the same period, thus proper matching (of revenue and expense recognition) does not consistently occur.

direct write off method

when an account is written off, the debit is to Bad debts expense

direct write off method

perpetual inventory system updates the accounting records....

for each purchase and each sale

merchandise inventory

goods a company owns and expects to sell to its customers

gross profit margin

gross profit/net sales

At year-end, Palmer Co. had shipped $9,800 of merchandise FOB shipping point to Homestead Co. Which company should include the $9,800 of merchandise in transit as part of its year-end inventory?

homestead co

supplementary records

information not included in the typical ledger accounts

the June 30 bank statement lists a $25 bank service charge

miscellaneous exp. 25 utilities exp 25

gross profit

net sales - COGS

Outstanding checks as of June 30 total $2,219.

no journal entry required

The June 30 cash receipts of $2,886 were placed in the bank's night depository after banking hours and were not recorded on the June 30 bank statement.

no journal entry required

deposit made on September 5 and processed by the bank on september 6

no reconciliation

checks outstanding on August 31 that cleared the bank in September

not included in reconciliation

checks written and mailed to payees on October 2

not included on bank reconciliation

FOB destination

ownership of goods is transferred when delivered to the buyer's place, goods are included in SELLERS inventory while in transit because ownership hasn't transferred to the buyer

Market value is replacement cost for LIFO, but net ___ value is used for FIFO, Specific Identification and Weighted Average methods.

realizable

net sales

sales-(sales discount + sales returns and allowances)

gross margin ratio

(net sales-cost of goods sold)/ net sales= gross margin ratio

allowance method

- bad debt estimate BDE 1,500 ADA 1,500 - write off specified customer ADA 520 AR 520 - recovery of Bad dept. AR- customer A 520 ADA 520 cash 520 AR-customer A 520

direct write off

- bad debt estimated, AJE not required - write off specified customer BDE 520 AR- customer A 520 - recovery of bad debt AR- customer A 520 BDE 520 cash 520 AR- customer A 520

Prepare the adjusting journal entries that Del Gato Clinic must record as a result of preparing the bank reconciliation

...

For each of the following items, indicate whether its amount affects the bank or book side of a bank reconciliation and represents an addition or a subtraction in a bank reconciliation and whether an adjusting journal entry is required:

....

indicate whether the item should be added to or deducted from the book or bank balance, or whether it should not appear on the reconciliation.

....

what are the two major concerns of the direct write off method

1) violation of matching principle - sales and expense might not match due to timing differences 2) materiality - if you don't record the bad debt in the time period when the sales are recorded then your accounts receivable will be overstated as well as sales and in subsequent periods when you do write it off then your sales will be understated in that period as well as income statement would be understated because the expense will be recorded in another period

Santa Fe Retailing purchased merchandise "as is" (with no returns) from Mesa Wholesalers with credit terms of 3∕10, n∕60 and an invoice price of $24,000. The merchandise had cost Mesa $16,000. Assume that both buyer and seller use a perpetual inventory system and the gross method. 1. Prepare entries that the buyer records for the (a) purchase, (b) cash payment within the discount period, and (c) cash payment after the discount period. 2. Prepare entries that the seller records for the (a) sale, (b) cash collection within the discount period, and (c) cash collection after the discount period.

1. a) inv. 24,000 AP 24,000 b) AP 24,000 inv. 720 cash 23,280 c) AP 24,000 cash 24,000 2. a) AR 24,000 sale 24,000 COGS 16,000 inv. 16,000 b) sales discount 720 cash 23,280 AR 24,000 c) cash 24,000 AR 24,000

operating cycle of merchandiser

1. merchandiser acquisition 2. purchase merchandise 3. prepare merchandise for sale 4. make credit sales to customers 5. monitor and service accounts receivable 6. collect cash from customers on account

Allied receives payment from Macy for the amount owed on the May 5 purchase; payment is net of returns, allowances, and any cash discount.

Allied: Sales Discount 128 Cash 6272 AR 6400 Macy: AP 6400 Merch. inv 128 Cash 6272

May 7: Macy returns 50 units because they did not fit the customer's needs (invoice amount: $750). Allied restores the units, which cost $550, to its inventory.

Allied: Sales Returns and Allowance 750 AR 750 Inv 550 COGS 550 Macy: AR 750 Merchandise inv. 750

May 8: Macy discovers that 50 units are scuffed but are still of use and, therefore, keeps the units. Allied sends Macy a credit memorandum for $350 toward the original invoice amount to compensate for the damage.

Allied: Sales returns and allowance 350 AR 350 Macy: AP 350 inv. 350

May 3: Allied made its first and only purchase of inventory for the period on May 3 for 1,000 units at a price of $11 cash per unit (for a total cost of $11,000).

Allied: merch. inv 11,000 cash 11,000 Macy: no journal required

May 5: Allied sold 500 of the units in inventory for $15 per unit (invoice total: $7,500) to Macy Co. under credit terms 2/10, n/60. The goods cost Allied $5,500.

Allied: AR 7,500 sales 7,500 COGS 5,500 merch. inv 5,500 Macy: merch. inv. 7,500 AP 7,500

Accounts receivable on the balance sheet is reported at net realizable value

Allowance Method

Weighted Average Method

An inventory costing method based on the weighted-average cost per unit of inventory that is calculated after each purchase.

(Allowance method) estimate JE is...

BDE Dr ADA Cr

May 12: Sydney returns $1,100 of the $27,000 of goods to Troy, who receives them the same day and restores them to its inventory. The returned goods had cost Troy $737.

Buyer: AP 1,100 inv. 1,100 Seller: Sale 1,100 AR. 1,100 Inv. 737 COGS 737

May 20: Sydney pays Troy for the amount owed. Troy receives the cash immediately.

Buyer: AP 25,900 cash 25, 123 inv 777 Seller: cash 25,123 SD 777 AR 25,900

Sydney accepts delivery of $27,000 of merchandise it purchases for resale from Troy: invoice dated May 11; terms 3/10, n/90; FOB shipping point. The goods cost Troy $18,090. Sydney pays $695 cash to Express Shipping for delivery charges on the merchandise.

Buyer: Inv. 27,000 AP 27,000 inv. 695 cash 695 Seller: AR 27,000 sale 27,000 COGS 18,090 inv. 18,090

A company reports merchandise inventory on December 31 at $250,000 but LCM applied to items is $200,000. Record the journal entry to report merchandise inventory at the correct amount

COGS 50,000 merch inv 50,000

Lists items such as currency and checks along with their dollar amounts

Deposit ticket

Gross Profit

Difference between net sales and the cost of goods sold.

No attempt is made to predict bad debts expense

Direct Write off method

a transfer of cash fro one party to another that does not involve a paper document

Electric funds transfer

. Mimics the actual flow of inventory.

FIFO

During a period of steadily rising costs, the method results in the highest amount of inventory reported on the balance sheet

FIFO

Yields the highest net income.

FIFO

FIFO

First In, First Out. Rotation system that uses the oldest products first