ch.6 learnsmarts

Walmart sells a bike that cost $100 to a customer for $250 cash. Using a perpetual inventory system, the entry to record the sale includes a debit to ... and credit to ... ... for $250. The entry to record the cost of the sale includes a debit to Cost of Goods Sold and a credit to ... for $100. (Enter only one word per blank.)

cash; sales revenue; inventory

Sales Returns & Allowances is a ______ account and is ______ when goods are returned by customers for a refund.

contra-revenue; debited

Merchandisers record revenue when they ______.

fulfill their performance obligations by transferring control of the goods to customers

Beginning Inventory + Purchases = _____.

goods available for sale (GAS)

Sales Returns and Allowances are reported on the ______.

income statement

Any costs incurred to get the merchandise into a condition and location ready for sale should be debited to ______.

inventory

If a seller sells its merchandise with the shipping terms FOB shipping point, it credits Revenue when the merchandise is _______.

shipped from the seller's place of business

The purchaser of inventory pays for shipping if the shipping terms are FOB ______.

shipping point

Gotit Inc. paid an invoice for $1,000 of merchandise plus shipping of $100. If the terms were 2/10, n/30, and the bill was paid within one week of receipt, how much cash was paid?

$1,080

Gross profit percentage is calculated as ______.

(net sales - COGS) / net sales x 100

perpetual system formula

BB Inventory + Purchases = Goods Available for Sale (GAS) - Cost of Goods Sold (COGS) = EB Inventory

True or false: In a periodic inventory system, Cost of Goods Sold is recorded at the end of the accounting period.

True. in a periodic inventory system, COGS is recorded at the end of the accounting period as one entry. In a perpetual inventory system, COGS is recorded at the time of the sale

In which company would you rather invest?

a company with high gross profit percentage and low sales volume

What does the gross profit percentage tell you?

a higher ratio means that more is available to cover operating expenses

In a perpetual inventory system, the buyer of merchandise with the shipping terms FOB shipping point will ______.

add transportation costs to its inventory account

The entry to record the purchase of inventory on account causes ______.

an increase in assets and liabilities

Inventory consists of the purchase price ______.

plus freight-in

Using a perpetual inventory system, the journal entry to record a sale on account will include a ______. (Check all that apply.)

Dr. Accounts Receivable Cr. sales revenue Dr. COGS Cr. inventory

Net Sales on an income statement equals Sales Revenue ______.

minus sales returns, allowances, and discounts

The entry to record the revenue recognized from the service portion of a bundle sale that was collected in advance is recorded with a debit to ______ and a credit to ______.

Deferred Revenue; Service Revenue

On October 25, Yacht Doc received $200,000 for a yacht valued at $180,000 and a 4-month service contract. During November, the yacht was delivered and 1 month of the service contract was performed. The remaining services are to be performed evenly over the next 3 months. In what month should the $180,000 for the yacht be recognized as revenue?

November... was delivered and recorded as revenue

To determine cost of goods sold for the period requires ______.

subtracting ending inventory from the goods available to sell, which is the beginning inventory plus purchases

Under the ... inventory system, inventory records are updated only at the end of the accounting period. (Enter one word per blank.)

periodic

Why is inventory reported as a current asset?

inventory is reposted as a current asset because it will be converted into cash within a year of the balance sheet date

Ace Electronics, which uses a perpetual inventory system, recorded a debit to Sales Returns & Allowances and a credit to Accounts Receivable, along with a debit to Inventory and a credit to Cost of Goods Sold. What business event must have taken place?

the customer received a damaged product and returned it

Under a perpetual inventory system, the entry to record the return of goods you had previously purchased on account was recorded with a debit to Accounts Payable and a credit to Inventory. This entry is ______.

correct

Berkley Company had beginning inventory of $4,000 and purchases of $20,000. If half of its inventory is sold, Berkley's total goods available for sale for the period will ______.

be split between cost of goods sold and ending inventory

The Inventory balance on the balance sheet reports the ______.

cost of goods available for sale

True or false: Gross Profit is a stockholders' equity account and is credited when goods are delivered to customers.

false: gross profit is a subtotal, not an account, found on the income statement

Ace Electronics had Cost of Goods Sold of $20,000. If purchases of inventory were $23,000 and Ending Inventory was $6,000, Ace's Beginning Inventory must have been ______.

$3,000

The income statement for ABC Company shows Gross profit of $144,000; Operating expenses of $130,000; and Cost of goods sold of $216,000. What is net sales revenue?

$360,000 (GOGS + gross profit)

Beginning inventory was $5,000. During the month, the company purchased an additional $25,000 of inventory. At the end of the month, ending inventory was $10,000. Cost of Goods sold equals ______.

$20,000

In what ways are periodic and perpetual systems similar? (Check all that apply.)

- both record a credit to sales at the time of the sales - both record a credit to accounts payable at the time of the purchase of merchandise on account

Periodic system formula

BB Inventory + Purchases = GAS - EB Inventory = COGS

Alpha Company bought inventory from Omega Company, FOB shipping point. On December 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 December 31 inventory?

alpha

Match the financial statement line item with the appropriate description. Instructions

inventory - current asset on the balance sheet available for sale sales revenue - selling price times the quantity sold cost of goods sold - cost times the quantity sold gross profit - a subtotal on the income statement and is the amount earned from adding value to the inventory sold

... companies sell goods that they have produced. (Enter one word per blank.)

manufacturing

Inventory began was $30,000. During the period the company purchased $61,000 of merchandise. At the end of the period, inventory was $22,000. If the gross profit percentage was 40%, what was sales revenue?

$115,000 COSG = 30,000 + 61,000 - 22,000 = 69,000 since gross profit is 40% that means cogs is 60%. sales = 69,000/60% = 115,000

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

In a periodic system, for Cost of Goods Sold to be updated, which of the following must occur? (Check all that apply.)

- compute COGS by subtracting ending inventory from GAS (goods available for sale) - take a physical count of inventory

The journal entry to record the payment for merchandise previously purchased on account includes a ______. (Select all that apply.)

- credit to cash - debit to accounts payable

Every merchandise sale has 2 components which require an entry in a perpetual inventory system. Select these two components given the sale was made on account to a customer.

- debit accounts receivable and credit sales revenue in the amount of the selling price times the quantity sold - debit COGS and credit inventory in the amount of the cost times the quantity sold

The journal entry to record taking a discount when paying for goods previously purchased on account and recorded using the gross method includes a ______. (Check all that apply.)

- debit to a liability account - credit to two asset accounts

To ensure the accuracy of inventory accounted for using a perpetual system, physical counts ______. (Check all that apply.)

- detect shrinkage - detect bookkeeping errors - detect theft

Which line items are found on a multi-step but not on a single-step income statement. (Check all that apply.)

- income from operations - gross profit

XYZ's journal entry to record the return of merchandise previously purchased on account by XYZ was recorded by debiting Inventory and crediting Accounts Payable. As a result of this entry, ______. (Select all that apply.)

- liabilities will be overstated - assets will be overstated

A multistep income statement is useful to financial statement users because it ______. (Select all that apply.)

- separates income statement items into meaningful components - separates COGS from other operating expenses, which allows the calculation to gross profit

What are the two stages of accounting for a purchase discount using the gross method? (Check all that apply.)

- 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 causes _____. (Check all that apply.)

- total assets to decrease - total liabilities to decrease

A sales discount with terms of 1/10,n/30 means the buyer receives a ...% discount if paid within ... days.

1 ; 10

Put the 5-step revenue model for a bundle sale in its proper order by placing the 1st step at the top.

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

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

1. sales revenue, gross 2. sales returns, allowances and discounts 3. sales revenue, net 4. COGS 5. gross profit

Breyer Company bought inventory FOB shipping point from Cellar Company for $4,000 cash, including shipping charges. On December 31, the last day of the accounting year, the goods were on a truck owned by Common Carrier Company, and not expected to arrive until January 3. Which company should include these goods in its December 31 inventory?

Breyer Company should include the $4,000 in its inventory

In a perpetual system, the entry to record the sale of merchandise to a customer on account would include a ______. (Check all that apply.)

Dr. COGS Cr. Inventory

Using a perpetual inventory system, what is recorded when a customer returns a product that was purchased on account, and the product is put back on the store shelf to be resold?

Dr. Sales Returns & Allowances Cr. Accounts Receivable Dr. Inventory Cr. COGS

When using the gross method, the journal entry to record taking a discount when paying for goods previously purchased on account includes a ______. (Check all that apply.)

Dr. accounts payable (original cost) Cr. Inventory (discount amount) Cr. Cash (amount paid)

On October 25, Yacht Doc received $200,000 for a yacht valued at $180,000 and a 4-month service contract. During November, the yacht was delivered and 1 month of the service contract was performed. The remaining services are to be performed evenly over the next 3 months. What is the entry Yacht Doc should record on October 25?

Dr. cash Cr. Deferred Revenue

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

What does the sales discount 2/10, n/30 mean?

You can take a 2% discount if you pay within 10 days, or the full amount is due within 30 days.

Goods Available for Sale will ______ when sold.

become cost of goods sold on the income statement

In a perpetual inventory system, the entry to record the sale includes a debit to ..... of ..... and a credit to ...... . (Enter one word per blank.)

cost; goods; sols; inventory

Which step must happen first when determining Cost of Goods Sold using a periodic inventory system?

count the number of units on hand

Inventory is reported as a(n) ______.

current asset on the balance sheet

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

debit to COGS

True or false: In a perpetual inventory system, the entry to record the cost of a sale is a debit to Cost of Goods Sold and a credit to Inventory (beginning) and a credit to Purchases.

false. this is the entry for a periodic, not perpetual, inventory system. the correct entry is debit to cost of goods sold and credit to inventory

In a perpetual system, the ... account is debited when a company purchases merchandise on account. (Enter one word per blank.)

inventory

The purchase of merchandise on account is recorded with a debit to ______ and a credit to ______.

inventory; accounts payable

On May 1, Doormart received an order from a customer. The goods were shipped FOB shipping point on May 3. The customer received the goods on May 5 and paid for the merchandise on June 1. When should Doormart record the sale?

may 3

...... sales on an income statement equals Sales Revenue (gross) minus Sales Returns and Allowances minus Sales ...... (Enter one word per blank.)

net; discounts

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 in a perpetual system

If Accounts Payable is debited and Cash is credited, then the company is recording a ______.

payment of amounts owed for purchases made on account

The ..... inventory system requires that the inventory account be updated only at the end of the accounting period. (Enter one word per blank.)

periodic

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

periodic

A benefit of the inventory system is that inventory shrinkage from theft, fraud and error is able to be estimated. (Enter one word per blank.)

perpetual

Which inventory system requires purchases of merchandise to be recorded in the inventory account instead of the purchases account?

perpetual inventory system

Which inventory system requires that the inventory account be updated at the time merchandise is sold?

perpetual system

If a seller sells its merchandise with the shipping terms FOB destination, it credits Revenue when the merchandise is _______.

received by the customer

Match each type of company with the type of goods or services it sells.

service companies - sells services rather than physical goods merchandising companies - sells goods that have been obtained from a supplier manufacturing companies - sell goods that they have made themselves

FOB ______ is the term used when ownership of the goods transfers to a buyer as soon as the goods leave the seller's place of business.

shipping point

True or false: Both the periodic and perpetual systems require a credit to Accounts Payable when inventory is purchased on account.

true

True or 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