Accy 2036 (chapter 6 info) Exam 2

The complexity that arises from a bundle sale of a product and service contract together for a single price is the seller _______

-Has to determine how to split the price. -Fulfills its performance obligations at different times

Alpha Company bought inventory from Omega Company, FOB shipping point. On Dec. 31, the last day of the accounting year, the goods were on a truck owned by Theta, Inc., exactly half-way between Alpha and Omega. Which company should include these goods in its Dec. 31 inventory?

Alpha

What is the equation for cost of goods sold available for sale?

Beginning Inventory + purchases

ABC Corp. sells a product fro $1,000 cash that cost $600. The journal entry(ies) for this transaction using a perpetual inventory system would include a debit to ___________

Cash of $1,000 and a credit to Sales Revenue of $1,000' a debit to Cost of Goods Sold of $600 and a credit to Inventory of $600.

the entry to record the collection of sales within the discount period that was made on account and recorded using the net method, includes a debit to _______ and a credit to _______

Cash; Accounts Receivable for the discounted price

A sales return that results in issuing store credit rather than a cash refund is recorded with a credit to a liability called _______

Deferred Revenue

Lambert Company, a wholesale merchandiser, would record a sale when the goods leave Lambert's shipping department only if which of the following possible times for transfer of controls is specified in the sales agreement?

FOB shipping point

Sales Returns and Allowances are reported on the:

Income Statement only

In order to calculate shrinkage:

a perpetual inventory system requires an occasional count of actual inventory

which of the following should be debited to inventory? a) purchases of merchandise on account b) freight-out c) freight-in if shipped FOB shipping point d) purchase discounts

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

sales revenue

amount seller expects to be entitles to receive from customers

Cost of Goods Sold is ...

an expense account reported on the income statement

Purchases of merchandise for resale that are still on hand are reported on the ________

balance sheet and not the income statement of merchandisers

Goods available for sale can:

be sold and then becomes Cost of Goods Sold on the income statement

Berkley Company had beginning inventory of $4,000 and purchases of $20,000. If half of its inventory was sold, Berkley's goods available for sale will:

be split between cost of goods sold and ending inventory

Goods Available for Sales will _____ when sold

become Cost of Goods Sold on the income statement

Inventory is reported as a(n) ______ on the _______

current asset; balance sheet only

Inventory is a(n) _____ intended to be _____

current asset; sold

In a periodic system, the end-of-period adjustment to transfer beginning inventory into cost of goods sold requires a ______ to Cost of Goods Sold

debit

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

deduction from sales

The operating cycle involves _______

generating revenues and collecting from customers

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

The adjustment to record inventory shrinkage will decrease _________

inventory on the balance sheet

__________ companies sell goods that they have produced

manufacturing

Gross Profit Percentage

measured the profit earned on each dollar of sales >higher ratio means that a greater profit is available to cover operating and other expenses

________ companies sell goods that have been obtained from other companies

merchandising

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 a perpetual system

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

operating

bundled items

package of several items (sold at a single price)

The _____ inventory system requires that the inventory account be updated only at the end of the accounting period

periodic

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

periodic

sales allowance

reduction in sales without return of goods Sales Revenue...Debit Cash...Credit

Sales Revenue reports the _________

sales price times the quantity of goods sold

cost of goods sold

the amount of inventory sold during the period

gross profit

the difference between what the goods sold for and what the retailer had to pay its supplier for the goods

Beginning inventory was $5,000. During the month, the company purchased an additional $25,000 of inventory and sold goods that cost $20,000. Ending inventory was _____

$10,000

Ace Electronics uses a perpetual inventory system. On May 1, beginning inventory was $10,000. On May 3, Ace purchased $3,000 of inventory and sold $1,500 of inventory for $5,000. At the end of business on May 3, the balance in Ace's Inventory account was _____

$11,500

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 Net Sales - COGS = Gross Profit

Bijoux Company has 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 items are netted against Sales Revenue to arrive at Net Sales (Sales Revenues, net)?

-Sales Allowances -Sales Returns -Sales Discounts

Which are true regarding recording purchases with discount terms using the net method?

-if the purchase is paid within the discount period, Accounts Payable is debited and Cash is credited for the discounted cost -the purchase is first recorded at the discounted cost

In what ways does a periodic system differ from a perpetual system?

-inventory is not updated until the end of the accounting period in a periodic system -Cost of Goods Sold is not updated until the end of the accounting period in a periodic system

Perpetual Inventory System (superior method)

-provides the most up-to-date record -continual recording -provides best inventory control -controls for inventory shrinkage (allows managers to determine how much inventory: -has been sold -remains to be sold -Is stored in warehouse -needs to be purchased)

Beginning inventory was $100. Purchases during the year were $3,000. Based on a physical count at year-end, inventory should equal $300. In a periodic system, the year-end adjusting entry to transfer beginning and ending inventory balances to cost of goods sold includes credits to _____

-purchases of $3,000 -inventory of $100

Sales Returns and Allowances

-record actual sales returns and allowances as they occur -adjust the accounts at month-end for further returns and allowances expected Sales Rev...Debit Cash...Credit Inventory...Debit COGS...Credit

Perpetual inventory system

-until inventory is sold, it is an asset reported at its cost on the balance sheet -After inventory is sold, its cost is removed from the balance sheet and reported on the income statement as an expense -the purchaser should record freight-in as an asset, Inventory -the seller should record freight-out as a selling expense

Place the income statement line items in the proper order from the top to bottom

1) Sales Revenue, gross 2) Sales Returns, Allowance and Discounts 3)Sales Revenue, net 4) Cost of Goods Sold 5) Gross Profit

5-step revenue model for a bundle sale in the proper order:

1) identify the contract 2) identify the seller's performance obligation 3) determine the transaction price 4) allocate the transaction price to each performance obligation in the bundle sale 5) recognize revenue when (or as) each performance obligation is satisfied

Match the description for each part of the purchase discount 2/10,n/30:

2: discount percentage 10: the discount period 30: when the full amount is due

Acme Enterprises, which uses a perpetual inventory system, recorded a debit to Sales Returns and 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

Which of the following is not reported on a multistep income statement a) Cost of goods sold b) Gross profit c) Inventory d) Sales revenue

c) inventory

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

debit to Accounts Payable; credit to Cash

In a perpetual system, the entry to record the sale of merchandise includes a _____

debit to Cost of Goods Sold

An adjusting entry that debits Sales Revenue and credits Refund Liability as well as debits Inventory-Estimated for Returns and credits Cost of Goods Sold is recording the ______

estimated returns

the cost of inventory sold is reported on the _______

income statement and not on the balance sheet

the cost of inventory sold is reported on the _____

income statement and not the balance sheet

After each sale of merchandise to a customer, both Inventory and Cost of Goods Sold are _______

kept up-to-date in a perpetual system

BetterBuy purchases computers from companies like Hewlett Packard and IBM and sells them to consumers. BetterBuy is a:

merchandising company at the retail level

Which inventory system required that the Inventory account be updated when merchandise is purchased?

perpetual system

The _______ inventory system records all inventory-related transactions in the inventory account (e.g. transportation, purchase returns and allowances, purchase discounts) and reduces inventory at the time of sale. The _______ inventory system uses separate accounts for these items and records cost of goods sold at the end of the accounting period

perpetual; periodic

Sales returns and allowances

reduces amount the seller expects to receive from customer

Whether purchase discounts are recorded using the gross or net method, ultimately purchase discounts taken are ________

reductions to Inventory

A series of activities that generates revenues and collects cash from customers is called:

the operating cycle

True of False: When a company sells different types of products, the income statement will report the Cost of Goods Sold for all of the products in one line item.

true

Ace Electronics uses a perpetual inventory system. On May 1, beginning inventory was $100,000. During May, Ace purchased $35,000 of inventory and sold $71,000 of inventory. After the store closed on May 31, employees counted the inventory in the store and found that $60,000 of inventory remained unsold. What was Ace's inventory shrinkage?

$4,000

X Company, which uses a perpetual inventory system, sold $2,000 of merchandise on account with credit of 2/10,n/30. The journal entry to record the initial sale gross of an discounts will include _______

-a credit to Sales Revenue of $2,000 -a debit to Accounts Receivable of $2,000

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:

-compare one company with another -make comparisons over time

Using a perpetual inventory system, the entry to record the return of goods you previously purchased on account includes a ___________

-credit to inventory -debit to Accounts Payable

In a perpetual system, the entry to record the sale of merchandise to a customer on account would include a _______

-debit to Cost of Goods Sold -credit to Inventory

The journal entry to record the payment of cash to FedEx for shipping costs for inventory purchased FOB shipping point includes a ___________

-debit to Inventory -credit to Cash

Hayward Co. reported net sales revenues of $23.76 billion and cost of goods sold of $7.2 billion. Its gross profit percentage was:

69.7% Gross profit percentage= [(Net sales - Cost of Goods Sold) / Net Sales] x 100 = [($23.76-$7.2) / $23.76] x 100 =69.7%

Sales Returns and Allowances is a ________ account and is ________ when goods are returned by customers fro a refund

contra-revenue; debited

When inventory is sold, the cost of the inventory is removed from inventory and reported on a multistep income statement as:

cost of goods sold

The gross profit percentage is the ratio to watch if you are worried about an increase in competition. If the company lowers its prices to retain market share without lowering its cost of goods sold, its gross profit percentage will _________

decrease

sales discounts

reported as reductions in initial sales revenue

Purchase _________ and allowances are accounted for with a credit to Inventory and a debit to Cash or Accounts Payable

returns

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

service revenue

Multistep income statement

shows how much profit is earned from product sales without being clouded by other operating expenses and separates other items that are not core to the operations of the company

To determine cost of goods sold for the period requires:

subtracting ending inventory from the goods available for sale, which is the beginning inventory plus purchases

A major drawback to the periodic inventory system is ______

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

True or False: An income statement in comparative format means that more than one year's results are reported

true

Periodic Inventory System

updates only at the end of the period

Operating Cycle

-series of activities undertaken to generate revenues -the activities ultimately lead to cash Companies that follow this cycle: -Service Companies (Sell Services -> Collect Cash -> Pay Expenses) -Merchandising Companies (Purchase Products -> Sell Products -> Collect Cash -> Pay Expenses) -Manufacturing Companies

In a periodic system, for Cost of Goods Sold to be updated, which of the following must occur?

-take a physical count of inventory -compute Cost of Goods Sold sold by subtracting Ending Inventory from Goods Available for Sale

What are the two stages of accounting for a purchase discount using the gross method?

-the inventory account is later reduced if payment is made within the discount period -the purchase is first recorded at full cost

The journal entry to record the payment within the discount period for goods previously purchased on account and recorded using the net method causes _______

-total assets to decrease -total liabilities to decrease