exam 2 practice test answers

Martin Company purchases $4,200 of merchandise on March 1, with credit terms of 3/10, n/30. If Martin pays on March 11, what is the cost of this purchase?

$4,074 (4200 * .03= 126; 4200-126= 4074)

Assume that sales revenue are $450,000, sales discounts are $10,000, net income is $35,000, and cost of goods sold is $320,000. How much are gross profit and operating expenses, respectively?

a. $120,000 and $85,000. (Net sales less cost of goods sold equals gross profit. Subtracting operating expenses from gross profit equals net income. Contra revenues are subtracted from revenues to calculate net sales.)

Net income is $15,000, operating expenses are $20,000, net sales total $75,000, and sales revenues total $95,000. How much is the profit margin?

a. 20% (net income ($15,000) divided by net sales ($75,000) results in a profit margin ratio of 20%.)

Which of these accounts normally have a debit balance?

a. Both Sales Discounts and Sales Returns and Allowances

Which of the following is not an inventory account?

a. Equipment

Which of the following is classified in an income statement as a nonoperating activity?

a. Interest expense

Which of the following is not a legitimate business reason for taking a physical inventory?

a. To verify the profitability of individual inventory items

At December 31, 2018, Sunrise Company's inventory records indicated a balance of $752,000. Upon further investigation it was determined that this amount included the following: $112,000 in inventory purchases made by Sunrise shipped from the seller December 27, 2018 terms FOB destination, but not due to be received until January 2, 2019 $74,000 in goods sold by Sunrise with terms FOB destination on December 27. The goods are not expected to reach their destination until January 6, 2019 $6,000 of goods received on consignment from Wallwood Company

b. $634,000

Arbor Corporation had reported the following amounts at December 31, 2018: Sales revenue $184,000; ending inventory $11,600; 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 cost of goods available for sale.

b. $74,100.(60400-3000-1100+600)

Sales revenue total to $10,000. Sales returns and allowances are $500 and sales discounts are $1,000. How much is net sales?

b. $8,500 (Net sales is sales ($10,000) less both sales returns and allowances ($500) and sales discounts ($1,000), for a net total of $8,500.)

During the year ended December 31, 2018, State Street Corporation had the following results: Sales revenue $267,000; cost of goods sold $107,000; net income $92,400; operating expenses $55,400; net cash provided by operating activities $108,950. How much is the company's profit margin?

b. 34.6% (The profit margin ratio is calculated by dividing the net income by sales; $92,400 ÷ $267,000 = 34.6%.)

In a perpetual inventory system, which accounts will the seller credit when merchandise is returned by a customer?

b. Accounts Receivable and Cost of Goods Sold

Cosmos Corporation, which uses a perpetual inventory system, purchased $2,000 of merchandise on July 5 on account. Credit terms were 2/10, n/30. It returned $400 of the merchandise on July 9. Which of the following is one effect when Cosmos pays its bill on July 21?

b. Credit to Cash for $1,600

Which of the following should not be included in the physical inventory of a company?

b. Goods held on consignment from another company

Which statement is true when recording the sale of goods for cash in a perpetual inventory system?

b. Two journal entries are necessary: one to record the receipt of cash and sales revenue, and one to record the cost of goods sold and to reduce inventory.

A credit sale of $750 is made on June 13, terms 2/10, n/30, on which a return of $50 is granted on June 16. What amount is received as payment in full on June 23?

c. $686 (750-50=700 * .02= 14; 700-14=686)

Jax Company uses a perpetual inventory system and on November 30 purchased merchandise for which it must pay the shipping charges. Which of the following is one part of the required journal entry when Jax pays the shipping charges of $200?

c. A debit to Inventory for $200

Marsh, Inc. paid for freight costs on merchandise it shipped to a customer. In what account will Marsh record this cost in a perpetual inventory system?

c. Freight‐out account

Which of the following items does not result in an entry to the Inventory account under a perpetual system?

c. Payment of freight costs for goods shipped to a customer

Which statement is true for the seller?

c. The Sales Returns and Allowances account is debited for defective merchandise returned by a customer.

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

d. $40,000 (Sales less cost of goods sold equals gross profit. Subtracting operating expenses from gross profit equals net income. Net income ($15,000) plus operating expenses ($20,000) results in a gross profit of $35,000. Subtracting gross profit ($35,000) from net sales ($75,000) results in cost of goods sold of $40,000.)

If sales revenues totals $400,000, cost of goods sold is $310,000, and operating expenses are $60,000, how much is the gross profit?

d. $90,000 (Gross profit is equal to sales revenue minus cost of goods sold. $400,000 ‒ $310,000 = $90,000)

A company has the following accounts balances: Sales revenue $2,000,000; Sales Returns and Allowances $250,000; Sales Discounts $50,000; and Cost of Goods Sold $1,275,000. How much is the gross profit rate?

d. 25% (Gross profit divided by net sales results in a gross profit rate of 25%. Gross profit = $1,700,000 ‒ $1,275,000 = $425,000 Net sales = $2,000,000 ‒ $250,000 ‒ $50,000 = $1,700,000 Gross profit rate = $425,000/$1,700,000 = 25%)

Which of the following would appear on both a single‐step and a multiple‐step income statement?

d. COGS

Which of the following statements is correct?

C. A perpetual inventory system provides better control over inventories than does a periodic inventory system.

Which of the following statements about a periodic inventory system is true?

C. Companies determine cost of goods sold only at the end of the accounting period.

Which inventory system will likely be used by a company with merchandise that has a high unit value?

D. Perpetual inventory system