Chapter 3 LO's 1, 2, 3, 6, 8

Amarillo Company experienced the following events during its first accounting period. (1) Purchased $5,000 of inventory on account under terms 1/10/n30. (2) Returned $1,000 of the inventory purchased in Event 1. (3) Paid the remaining balance in account payable within the discount period for the inventory purchased in Event 1. Immediately after the three events have been recognized, the balance in the inventory account is

$3,960

Amarillo Company experienced the following events during its first accounting period. (1) Purchased $5,000 of inventory on account. (2) Returned $1,000 of the inventory purchased in Event 1. (3) Paid the remaining balance in account payable for the inventory purchased in Event 1. (4) Sold inventory purchased in Event 1 for $5,000 to customers on account. At the end of the first accounting period what would be reported for Net Operating Cash Flow on the Statement of Cash Flows?

(4000)

Escrow Company's multistep income statement shows cost of goods sold of $60,000, a gross margin of $42,000, operating income of $12,000 and a $20,000 loss on the sale of land. Based on this information, the net income or (net loss) amounted to

(8000)

Amarillo Company experienced the following events during its first accounting period. (1) Purchased $5,000 of inventory on account. (2) Returned $1,000 of the inventory purchased in Event 1. (3) Paid the remaining balance in account payable for the inventory purchased in Event 1. (4) Sold inventory purchased in Event 1 for $5,000 to customers on account. At the end of the first accounting period what would be reported on the Income Statement for net income?

1000

Walter Company's multistep income statement shows cost of goods sold of $60,000, a gross margin of $42,000, operating income of $12,000 and a $20,000 loss on the sale of land. Based on this information the sales revenue amounted to

102,000

Mahan Company purchased inventory on account under terms 2/10/n30. Mahan would like to pay the account payable within the discount period in order to receive the discount. Unfortunately, Mahan does not have the cash. What is the maximum annual interest rate that Mahan would be willing to pay in order to borrow the money necessary to settle the account payable?

36.5% A 2% discount for 20 days is equivalent to a 36.5 % annual interest (365 days ÷ 20 day discount period = 18.25 discount periods in one year; 18.25 discount periods x .02 discount rate per period = 36.5% equivalent annual interest rate)

Amarillo Company experienced the following events during its first accounting period. (1) Purchased $5,000 of inventory on account under terms 1/10/n30. (2) Returned $1,000 of the inventory purchased in Event 1. (3) Paid the remaining balance in account payable for the inventory purchased in Event 1. If the Company pays the account payable after the discount period has expired, how much cash will be required to settle the liability?

4000

Amarillo Company experienced the following events during its first accounting period. (1) Purchased $5,000 of inventory on account. (2) Returned $1,000 of the inventory purchased in Event 1. (3) Paid the remaining balance in account payable for the inventory purchased in Event 1. Immediately after the three events have been recognized, the balance in the inventory account is

4000

When a merchandising company pays cash to purchase inventory

Assets account stays the same

Amarillo Company experienced the following events during its first accounting period. (1) Purchased $5,000 of inventory on account under terms 1/10/n30. (2) Returned $1,000 of the inventory purchased in Event 1. (3) Paid the remaining balance in account payable within the discount period for the inventory purchased in Event 1. Based on this information, which of the following shows how paying off the account payable account (Event 3) will affect the Company's financial statements?

Assets: (3,960) ===== Liabilities: (3,960) Equity: NA == Revenue: NA Expense: NA Net Income: NA == Cash Flow: (3,960) OA

Amarillo Company experienced the following events during its first accounting period. (1) Purchased $5,000 of inventory on account under terms 1/10/n30. (2) Returned $1,000 of the inventory purchased in Event 1. (3) Paid the remaining balance in account payable within the discount period for the inventory purchased in Event 1. Based on this information, which of the following shows how the recognition of the cash discount (Event 1) will affect the Company's financial statements?

Assets: (40) ===== Liabilities: (40) Equity: NA == Revenue: NA Expense: NA Net Income: NA == Cash Flow: NA

Amarillo Company experienced the following events during its first accounting period. (1) Purchased $5,000 of inventory on account. (2) Returned $50 of the inventory purchased in Event 1. (3) Sold the inventory for $6,000 cash. Based on this information, which of the following shows how the recognition of the return will affect the Company's financial statements?

Assets: (50) ===== Liabilities: (50) Equity: NA == Revenue: NA Expense: NA Net Income: NA == Cash Flow: NA

Which of the following shows the effects of purchasing inventory on account? + and -

Assets: + ===== Liabilities: + Equity: NA == Revenue: NA Expense: NA Net Income: NA == Cash Flow: NA

Edwards Shoe Store sold shoes that cost the company $5,700 for $8,200. Which of the following shows how the recognition of the cost of goods sold will affect the Company's financial statement?

Assets: - ===== Liabilities: NA Equity: - == Revenue: NA Expense: + Net Income: - == Cash Flow: NA

Beachwood Clothing Company operates a chain of high end men's clothing stores. Recently the Company closed one of its stores and sold the equipment that was used in the store. The equipment had cost $5,000 and was sold for $6,000. Which of the following shows how the recognition of this event would affect the Company's financial statements?

Assets: 6000 Equipment: (5000) ===== Liabilities: NA Equity: 1000 == Revenue: NA Gain: 1000 Expense: NA Net Income: 1000 == Cash Flow: 6000 IA

Amarillo Company experienced the following events during its first accounting period. (1) Purchased $5,000 of inventory for cash. (2) Returned $100 of the inventory purchased in Event 1. Based on this information, which of the following shows how the recognition of the return will affect the Company's financial statements?

Assets: NA ===== Liabilities: NA Equity: NA == Revenue: NA Expense: NA Net Income: NA == Cash Flow: 100 OA

Product costs are expensed when they are incurred. This statement is

False

The amount of net income shown on a multi-step income statement will differ from the amount of net income shown on a single-step income statement

False

Which of the following events experienced by a department store would be presented in the operating section of a multistep income statement?

Inventory sold for less than its cost

Keisha Dress Shops experienced the following events during its third accounting period. (1) Sold merchandise that cost $92,000 for $140,000 cash. (2) Paid $30,000 of operating expenses. (3) Paid a $4,000 cash dividend. Based on this information, the amount of the gross margin is

Revenue - Cost of Goods Sold = Gross Margin 140,000 - 92,000 = 48,000

Common size statements are presented as percentages to promote comparisons between different size companies. This statement is

True

Underwood Company's gross margin percentage increased from 40% to 45%. Which of the following is not a possible explanation for this increase, assuming all other things being equal?

Underwood sold more products

AmRon Company sold land that had cost $25,000 for $26,500. Based on this information, the company's year-end financial statements would show

a cash inflow from investing activities of $26,500 on the statement of cash flows

Inventory is

an asset account that appears on the balance sheet

Paying cash to purchase inventory is

an asset exchange transaction

McDonald's will recognize a gain if it generates an amount of revenue that is higher than its operating expenses. This statement is

false

The gross margin appears on a

multistep income statement

When a merchandising company sells inventory it will

recognize revenue and expense

Zack's, Inc. sold land that cost $85,000 for $70,000 cash. As a result of this event

total assets decreased