ACG2021 Ch5

Gross profit equals

sales minus cost of goods sold. Gross profit equals sales minus cost of goods sold. Gross profit is reported on a multi-step income statement.

In a perpetual inventory system, the purchase discount reduces the:

Inventory account

At the beginning of the year, a company had an inventory of $400,000. During the year, the company purchased goods costing $1,500,000. Its ending inventory is $500,000 and its sales are $2,000,000. Compute the company's cost of goods sold and gross profit rate.

$1,400,000 and 30%, respectively. Beginning inventory, $400,000 Purchases, $1,500,000 Less: Ending inventory, 500,000 Cost of goods sold, $1,400,000 Gross profit = Net sales - Cost of goods sold Gross profit = $2,000,000 - 1,400,000 = $600,000 Gross profit rate = Gross profit/Net sales Gross profit rate = $600,000/$2,000,000 = 0.30 or 30%

Financial information about a certain corporation is presented below: Operating expenses $ 45,000 Sales returns and allowances 4,000 Sales discounts 6,000 Sales revenue 160,000 Cost of goods sold 90,000 What is its net sales?

$150,000 Net sales = Sales - Sales returns & allowances - Sales discounts Net sales = $160,000 - 6,000 - 4,000 = $150,000

A company's accounting records show the following account balances: Beginning Inventory, $72,000 Ending Inventory, $40,000 Freight-In, $2,500 Freight-Out, $7,500 Purchases, $285,300 Purchase Returns and Allowances, $20,200 Purchase Discounts, $12,000 The company uses the periodic inventory system. Based on the information above compute cost of goods sold.

$287,600 Net purchases = Purchases - Purchase discounts - Purchase R&A + Freight In Net purchases = 285,300 - 12,000 - 20,200 + 2,500 = 255,600 Cost of goods sold = Beginning inventory + Net purchases - Ending inventory Cost of goods sold = 72,000 + 255,600 - 40,000 = 287,700

A company's accounting records show the following account balances: Beginning Inventory 30,000 Ending Inventory 39,000 Purchase Discounts $ 2,000 Purchases 350,000 Sales 680,000 Using the periodic system, the cost of goods sold is

$339,000. Cost of goods sold = Beginning inventory + purchases - purchase returns & allowances - purchase discounts - ending inventory Cost of goods sold = 30,000 + 350,000 − 0 - 2,000 - 39,000 = 339,000

A company's accounting records show the following account balances: Sales $ 600,000 Purchases 355,000 Beginning Inventory 23,000 Ending Inventory 28,000 Purchase Returns and Allowances 3,000 Using the periodic system, the cost of goods sold is

$347,000. Cost of goods sold = Beginning inventory + purchases - purchase returns & allowances - purchase discounts - ending inventory Cost of goods sold = 23,000 + 355,000 - 3,000 - 0 - 28,000 = 347,000

A company's accounting records show the following account balances: Beginning Inventory, $43,000 Ending Inventory, $55,000 Freight-In, $11,500 Freight-Out, $15,500 Purchases , $375,000 Purchase Returns and Allowances, $11,000 Purchase Discounts, $9,000 The company uses the periodic inventory system. Based on the information above compute cost of goods sold.

$354,500 Net purchases = Purchases - Purchase discounts - Purchase R&A + Freight In Net purchases = 375,000 - 9,000 - 11,500 + 11,500 = 366,500 Cost of goods sold = Beginning inventory + Net purchases - Ending inventory Cost of goods sold = 43,000 + 366,500 - 55,000 = 354,500

Net income is $15,000, operating expenses are $20,000, and net sales total $75,000. How much is cost of goods sold?

$40,000 Gross profit - operating expenses = net income. Alternatively: Net income + operating expenses = gross profit. $15,000 + 20,000 = $35,000Net sales - cost of goods sold = gross profitAlternatively: Net sales - gross profit = cost of goods sold$75,000 - 35,000 = $40,000.

If beginning inventory is $100,000, cost of goods purchased is $500,000, sales revenue is $1,000,000 and ending inventory is $130,000, how much is cost of goods sold under a periodic system?

$470,000 Cost of goods sold is computed by adding beginning inventory and cost of goods purchased and then subtracting ending inventory, or $100,000 + $500,000 - $130,000 = $470,000.

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?

$55,800 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

A corporation reports the following: Sales revenue, $184,000 Ending inventory, $16,600 Beginning inventory, $17,200 Purchases, $60,400 Purchases discounts, 3,000 Purchase returns and allowances, $1,100 Freight-in, $600 Freight-out, $900 Calculate the company's cost of goods sold.

$57,500 Cost of goods sold equals beginning inventory plus purchases minus purchases discounts and purchases returns and allowances plus freight-in minus ending inventory. Cost of goods sold = 17,200 + 60,400 - 3,000 - 1,100 + 600 - 16,600 = 57,500.

Information for Leon Company is presented below: Cost of goods sold, $70,000Operating expenses, $25,000Sales discounts, $3,000Sales returns and allowances, $8,000Sales revenue, $150,000 Compute the company's gross profit.

$69,000 Net sales = Sales revenue - sales returns and allowance - sales discounts Net sales = $150,000 - 8,000 - 3,000 = 139,000 Gross profit = Net sales - cost of goods sold Gross profit = $139,000 - 70,000 = $69,000

A company purchased merchandise inventory with an invoice price of $9,000 and credit terms of 2/10, n/30. What is the net cost of the goods if the company pays within the discount period?

$8,820 The terms 2/10, n/30 indicate that the discount is 2% if payment is made within 10 days of the invoice date. This permits the company to take a discount of $180 (2% x $9,000) on the invoice and pay $8,820 (i.e., $9,000 - 180 = $8,820).

A corporation has the following: Sales revenue, $430,000 Sales returns and allowances, $20,000 Sales discounts, $10,000 Cost of goods sold, $310,000 Operating expenses, $60,000 Other expenses, $10,000How much is its gross profit?

$90,000 Net sales = Sales - Sales returns and allowances - Sales discountsNet sales = $430,000 - 20,000 - 10,000 = $400,000Gross profit = Net sales- Cost of goods soldGross profit = $400,000 - 310,000 = $90,000

A company has the following balances: Sales revenue $312,000; Sales Returns and Allowances $2,000; Sales Discounts $4,000; Cost of Goods Sold $184,000; Operating Expenses $79,000; Other expenses $5,000. How much is the profit margin?

12.4% Profit margin = Net income divided by net sales Net sales = Sales revenue minus sales returns and allowances minus sales discounts Net sales = 312,000 - 2,000 - 4,000 = 306,000Net income = Net sales - cost of goods sold - operating expenses - other expenses Net income = 306,000 - 184,000 - 79,000 - 5,000 = 38,000Profit margin = Net income divided by net sales Profit margin = 38,000/306,000 = 12.4%.

A company has the following: Sales revenue $95,000; Sales Returns and Allowances $15,000; Sales Discounts $5,000; Cost of Goods Sold $35,000; Operating Expenses $22,000; Other expenses $3,000. How much is the profit margin?

20% Profit margin = Net income divided by net salesNet sales = Sales revenue minus sales returns and allowances minus sales discountsNet sales = 95,000 - 15,000 - 5,000 = 75,000Net income = Net sales - cost of goods sold - operating expenses + other revenue - other expensesNet income = 75,000 - 35,000 - 22,000 + 0 - 3,000 = 15,000Profit margin = Net income divided by net salesProfit margin = 15,000/75,000 = 20%.

A company purchased merchandise with an invoice price of $3,000 and credit terms of 2/10, n/40. Assuming a 360 day year, what is the implied annual interest rate inherent in the credit terms?

24% The company buying merchandise can wait 10 days and still receive a 2% discount. Otherwise, it can wait an additional 30 days and pay the full invoice amount without being overdue. In other words, a 30-day difference produces 2% interest. An interest rate of 2% in 30 days is equivalent to an interest rate of 24% in 360 days (i.e., 2% x 360/30).Alternatively:The company must pay the invoice no later than 40 days after the sale. If it pays no later than 10 days after the invoice date, the company gets a 1% discount (i.e., 2% x $3,000 = $60). So, the company can save $60 if it pays 30 days before the due date.Interest = Principal x Interest rate x Time$60 = $3,000 x Interest rate x (40-10)/360Solving for the interest rate:Interest rate = [360/(40-10)] x $60/$3,000 = 0.24 (i.e., 24%)

Financial information is presented below: Operating expenses $ 28,000 Sales returns and allowances 7,000 Sales discounts 3,000 Sales revenue 150,000 Cost of goods sold 91,000 Net income $10,000 Which of the following is closest to this company's gross profit rate?

35% Sales, $150,000 Less: Sales returns and allowances, $7,000 Less: Sales discounts, $3,000 Net sales, $140,000 Less: Cost of goods sold, $91,000 Gross profit, $49,000 Gross profit rate = Gross profit/Net sales Gross profit rate = $49,000/$140,000 = 0.35 or 35%

A company purchased merchandise with an invoice price of $3,000 and credit terms of 2/10, n/30. Assuming a 360 day year, what is the implied annual interest rate inherent in the credit terms?

36% The company buying merchandise can wait 10 days and still receive a 2% 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 2% interest. An interest rate of 2% in 20 days is equivalent to an interest rate of 36% in 360 days (i.e., 2% x 360/20). Alternatively:The company must pay the invoice no later than 30 days after the sale. If it pays no later than 10 days after the invoice date, the company gets a 1% discount (i.e., 2% x $3,000 = $60). So, the company can save $60 if it pays 20 days before the due date.Interest = Principal x Interest rate x Time$60 = $3,000 x Interest rate x (30-10)/360Solving for the interest rate:Interest rate = [360/(30-10)] x $60/$3,000 = 0.36 (i.e., 36%)

A corporation has the following: Cost of goods sold, $85,000 Operating income, $10,000 Sales discounts, $3,000 Sales returns and allowances, $12,000 Sales revenue, $140,000 Net income, $5,000Which of the following is closest to this company's profit margin?

4% Net sales = Sales revenue minus sales returns and allowances minus sales discountsNet sales = 140,000 - 12,000 - 3,000 = 125,000 Profit margin = Net income divided by net salesProfit margin = 5,000/125,000 = 0.04 (or 4%).

A company purchased merchandise with an invoice price of $2,000 and credit terms of 3/10, n/30. Assuming a 360 day year, what is the implied annual interest rate inherent in the credit terms?

54% The company buying merchandise can wait 10 days and still receive a 3% 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 3% interest. An interest rate of 3% in 20 days is equivalent to an interest rate of 54% in 360 days (i.e., 3% x 360/20). Alternatively:The company must pay the invoice no later than 30 days after the sale. If it pays no later than 10 days after the invoice date, the company gets a 3% discount (i.e., 3% x $2,000 = $60). So, the company can save $60 if it pays 20 days before the due date.Interest = Principal x Interest rate x Time$60 = $2,000 x Interest rate x (30-10)/360Solving for the interest rate:Interest rate = [360/(30-10)] x $60/$2,000 = 0.54 (i.e., 54%)

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 debit to Inventory for $200 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.

A company uses a perpetual inventory system. It purchased $10,000 of merchandise with terms 2/10, n/30. It must also pay a $250 shipping charge. The company paid for the merchandise and the shipping charge nine days after their invoice date. Which of the following is part of the required journal entry the company records when it pays the shipping charge of $250?

A debit to Inventory for $250 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 $250 and a credit to cash for $250.

Which factor would not affect the gross profit rate?

An increase in the cost of heating the store An increase in the cost of heat (electricity) causes total expenses to increase. However, electricity is an operating expense and does not affect gross profit.

Which of the following is not a component of the operating cycle of a merchandising company?

Borrowing money from a bank 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).

Which of the following is not a component or step of the operating cycle for a service company?

Buy inventory to be resold to customers Solution: The operating cycle of a service company involves performing services for customers who either pay cash immediately or pay later. If payment comes later, the service company records the sale on account (i.e., the service company increases accounts receivable), and later when the customer pays cash the service company increases cash and decreases accounts receivable. These steps do not including buying or selling inventory. Service companies do not sell inventory; they only sell services.

The operating cycle of a merchandising company is usually longer than the operating cycle of a service company because it has an extra expense account involved in its operating cycle. What is that extra expense account?

Cost of Goods Sold The operating cycle of a service company involves performing services for customers and collecting (i.e., receiving) cash from customers. The operating cycle of a merchandising company includes these two steps and two additional two steps, including buying of inventory and delivering inventory. These extra steps create a need for two accounts not used by service companies: (i) inventory and (ii) cost of goods sold. Inventory is reported on the balance sheet, and cost of goods sold is reported on the income statement.

Which of the following will result in negative gross profits?

Cost of goods sold exceeding sales revenue Gross profit is net sales revenue less cost of goods sold, operating expense is subtracted later therefore does not affect gross profits. Only when cost of goods sold would exceed net sales revenue can gross profits be negative.

A corporation uses a perpetual inventory system. It purchased $3,000 of merchandise on August 2 on account with terms 1/10, n/30. It returned $250 of the merchandise on August 4. It pays on August 12. Which of the following is part of the journal entry it records when it pays on August 12?

Credit Inventory for $27.50 The discount terms are 1/10, n/30 which indicates a 1% discount if paid within 10 days but the full amount is due otherwise. Since the bill is paid on the tenth day (or sooner), the buyer gets the 1% discount. The balance due is $3,000 less the returned goods of $250, or $2,750, minus the discount on the net amount. The discount on $2,750 is $27.50, so $2,722.50 is due. The accounting entry will debit Accounts Payable for $2,750, credit Cash for $2,722.50, and credit Inventory for $27.50.

A company uses a perpetual inventory system. On December 10, the company bought inventory for $3,000. It is the only item of inventory it owns. On December 29, it sells the inventory for $5,500 on account with terms 2/10 n/30. The company's customer pays for the inventory on January 3. Which of the following is recorded by the company on December 29?

Credit inventory for $3,000 In a perpetual inventory system, companies record increases to inventory when they buy it and when customers return it, and they record decreases to inventory when they sell it. On the date of sale, it debits accounts receivable for $5,500 and credits sales revenue for $5,500. It would also debit cost of goods sold for $3,000 and credit inventory for $3,000.

A corporation uses the perpetual inventory system. On April 1, it purchased merchandise on account for $15,000 with terms 1/15, n/30. It pays a shipping company $250 to transport the merchandise from the seller. It returns merchandise with an invoice price of $1,000 to the seller on April 7. On April 30, it pays for the merchandise it retains. How would it record the payment on April 30 for the merchandise it retained?

Debit accounts payable for $14,000; credit cash for $14,000. The company purchasing merchandise uses the perpetual inventory system. When it pays the balance due for the purchase of inventory after the discount period, it pays the invoice price of the inventory not returned to the seller without any purchase discount. The cash paid to the seller is $14,000 (i.e., $15,000 - 1,000 = $14,000).5,3,3

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 pays a shipping company $200 to transport the merchandise from the seller. 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 it record the payment May 10 for the merchandise it retained?

Debit accounts payable for $9,000; credit cash for $8,820; and credit inventory for $180. The company purchasing merchandise uses the perpetual inventory system. When it pays the balance due for the purchase of inventory within the discount period, it pays the invoice price of the inventory not returned to the seller minus the purchase discount. The purchase discount equals the discount rate multiplied by the net amount purchased (i.e., 2% x ($10,000 - 1,000) = $180). In a perpetual inventory system, the purchase discount reduces the inventory account. The cash paid to the seller is $8,820 (i.e., $10,000 - 1,000 - 180 = $8,820). The buyer would debit accounts payable for $9,000, credit cash for $8,820, and credit inventory for $180.

A corporation uses the perpetual inventory system. It purchased merchandise on account for $15,000 with terms 1/15, n/30. It pays a shipping company $250 to transport the merchandise from the seller. How would it record its payment of the transportation charges?

Debit inventory for $250; credit cash for $250. Solution:The company purchasing merchandise uses the perpetual inventory system. When it purchases inventory and must pay shipping charges (i.e., FOB shipping point), it should debit the inventory account for the transportation charges. Since shipping is paid, cash must be credited.

A purchaser may be dissatisfied with goods purchased and decide to return them to the seller. If the purchaser uses the perpetual inventory system, the purchaser's journal entry to record the return of merchandise purchased on account would include a credit to the following account:

Inventory

A company uses the perpetual inventory system. Which of the following transactions neither increases nor decreases its inventory account?

Granting a customer an allowance by reducing the purchasing price In a perpetual inventory system, companies record increases to inventory when they buy it and when customers return it, and they record decreases to inventory when they sell it. Paying freight charges to acquire inventory is part of the cost of buying inventory. However, the entry to record the payment of freight costs to ship goods to a customer decrease cash and increase freight out (i.e., delivery expense); it does not affect the inventory account. Similarly, when a grants a customer an allowance by reducing the purchasing price it does not affect the inventory account because sales allowances increase the Sales Returns and Allowances account (debit it) and decreases accounts receivable (credit it).

Which of the following is true with regards to the flow of costs for a merchandising company?

If goods are sold, they are assigned to cost of goods sold. Solution:Merchandising companies buy and sell inventory in an attempt to generate income. To measure income, they must measure cost of goods sold. Beginning inventory plus the cost of goods purchased is the cost of goods available for sale. As goods are sold, they are assigned to the cost of goods sold (i.e., cost of goods sold increases). Goods that are not sold by the end of the accounting period represent ending inventory.

Under the perpetual system, cash freight costs incurred by the buyer for transporting goods being purchased is recorded in which account by the buyer?

Inventory

Manning Corporation uses the perpetual inventory system. On April 1, Manning Corporation sells merchandise on account for $15,000 with terms 1/15, n/30. Manning Corporation had paid $6,000 to acquire the merchandise. On April 7, Manning's customer returns merchandise with an invoice price of $1,000. The merchandise returned to Manning Corporation had cost Manning Corporation $600. How would Manning Corporation record the customer's return of merchandise on April 7?

It would record two journal entries. Debit sales returns and allowances for $1,000; credit accounts receivable for $1,000. Debit inventory for $600; credit cost of goods sold for $600. The company selling merchandise uses the perpetual inventory system. When it sells inventory, it should credit sales revenue for the invoice price of merchandise sold, and when a customer returns merchandise it should debit sales returns and allowances for the invoice price of the portion of the merchandise returned. Because the company selling merchandise uses the perpetual inventory system, it also immediately increases inventory and decreases cost of goods sold by the cost of the inventory returned.5,3,3

Which of the following describes how to compute the gross profit rate?

Net sales minus cost of goods sold, divided by net sales The formula for computing the gross profit rate is net sales minus cost of goods sold divided by net sales.

Under what inventory system is cost of goods sold determined at the end of an accounting period?

Periodic inventory system Under the periodic inventory system, cost of goods sold for the period is calculated by adding purchases for the period to the beginning inventory balance and subtracting the ending inventory balance.

Under what inventory system is cost of goods sold determined after each sale?

Perpetual inventory system Under the perpetual inventory system, cost of goods sold is determined with each sale.

Merchandising companies that sell directly to consumers are called

Retailers Companies that buy and sell merchandise as called merchandisers or merchandising companies. In contrast, companies that do not sell merchandise sell their services to customers; they are called service companies. Finally, some companies produce or manufacture their own inventory using raw materials and converting raw materials into work in process and then finished goods.Companies that sell directly to consumers (e.g., final users of the product) are called retailers. In contrast, some companies sell merchandise to retailers that retailers sell to customers (rather than sell merchandise directly to consumers). These companies are called wholesalers.

Which of the following accounts has a normal credit balance?

Sales Revenue Solution: Contra revenue accounts include: 1. Sales discounts 2. Sales returns and allowances Contra revenue accounts are used to compute net sales. Both normally have debit balances while revenue normally has a credit balance.

A company's gross profit rate is lower this year compared to the prior year. Which of the following would not be a possible cause for this decline in the gross profit rate?

The company began selling products with a higher markup. Recall that gross profit rate equals gross profit divided by net sales. A decline in the gross profit rate suggest either a decline in gross profit and/or an increase in net sales. A decline in a company's gross profit rate may be caused by selling products with smaller gross margins (i.e., lower "mark-ups"), lowering prices and/or offering more price discounts due to increases in competition, or increases in sales allowances offered to customers.

Under a perpetual inventory system

accounting records continuously show the amount of inventory

When using the periodic inventory system a physical inventory count is used to determine

cost of goods sold.

The journal entry to record a sale of merchandise for $1,200 on account with terms of 2/10, n/30 will include a

credit to Sales Revenue for $1,200. Record the sale on account with the following accounts debited and credited:Debit: Accounts Receivable for $1,200Credit Sales Revenue for $1,200

Manning Corporation uses the perpetual inventory system. On April 1, Manning Corporation sells merchandise on account for $15,000 with terms 1/15, n/30. Manning Corporation had paid $9,000 to acquire the merchandise. On April 7, Manning's customer returns merchandise with an invoice price of $1,000. The merchandise returned to Manning Corporation had cost Manning Corporation $600. On April 30, Manning Corporation receives payment for the merchandise retained its customer. The journal entry that Manning Corporation records when it receives the payment from its customer on April 30 includes a

debit to cash for $14,000. The company selling merchandise uses the perpetual inventory system. When it collects payment for the balance due after the discount period, it collects the invoice price of the inventory not returned by the purchaser without any sales discount. The cash collected by the seller is $14,000 (i.e., $15,000 - 1,000 = $14,000).5,3,3

Clark Corporation uses the perpetual inventory system. On May 1, Clark Corporation sells merchandise on account for $10,000 with terms 2/10, n/30. Clark Corporation had paid $6,000 to acquire the merchandise. On May 7, the buyer returns merchandise with an invoice price of $1,000 to Clark Corporation. The merchandise returned to Clark Corporation had cost Clark Corporation $600. On May 10, Clark Corporation receives payment for the merchandise retained by the buyer. The journal entry that Clark Corporation records when it receives the payment from the buyer on May 10 includes a

debit to cash for $8,820. The company selling merchandise uses the perpetual inventory system. When it collects payment for the balance due within the discount period, it collects the invoice price of the inventory not returned by the purchaser minus the sales discount. The sales discount equals the discount rate multiplied by the net amount sold (i.e., 2% x ($10,000 - 1,000) = $180). The cash collected by the seller is $8,820 (i.e., $10,000 - 1,000 - 180 = $8,820).5,3,3

Sales revenue minus cost of goods sold equals

gross profit. Gross profit equals sales minus cost of goods sold. Gross profit is reported on a multi-step income statement.

If a purchaser uses a perpetual inventory system and pays the freight cost associated with acquiring its inventory from a supplier then the purchaser's

inventory account is increased by the freight costs.

A company uses a perpetual inventory system to record the following events involving a recent purchase of inventory: On August 1,it purchased merchandise for $20,000, terms 1/10, n/30. On August 3, it paid freight costs of $900 on merchandise purchased. On August 6, it returned $400 of merchandise to the supplier. On August 9, it paid the amount due to the supplier. As a result of these events, the company's inventory

increased by $20,304. (Purchase - purchase returns & allowance) x (100% - discount percentage) + freight-in($20,000 - 400) x (100% - 1%) + 900 = $20,304

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 $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 corporation recorded the following events involving a recent purchase of inventory: Received goods for $35,000, terms 1/10, n/30. Returned $600 of the shipment for credit. Paid $150 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 $34,206. 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: [($35,000 - 600) x 99%] + $150 = $34,206

A company uses a perpetual inventory system to record the following events involving a recent purchase of inventory: On May 1, it purchased merchandise for $40,000, terms 2/10, n/30. On May 3, it paid freight costs of $200 on merchandise purchased. On May 6, it returned $800 of merchandise to the supplier. On May 9, it paid the amount due to the supplier. As a result of these events, the company's inventory

increased by $38,616. (Purchase - purchase returns) x (100% - discount percentage] [(40,000 - 800) x 98% + 200 = 38,616

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 $1,200 on merchandise purchased. On July 6, it returned $300 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 $50,403. [(Purchase - purchase returns) x (100% - discount percentage] [(50,000 - 300) x 99% + 1,200 = 50,403