Homework & Smartbook Misc

Chapter 4 Accounting for Merchandising Operations Match each phrase with each definition 1. Seller's description of a cash discount granted to buyers in return for early payment. 2. Time period in which a cash discount is available 3. Refers to credit terms where goods in transit are owned by the buyer 4. A current asset that includes the cost to buy goods and make them ready for sale. 5. A type of business that earns income by buying and selling merchandise. 6. A method in which the cost of goods sold is recorded at the time of each sale. 7. The amount of time allowed by a seller before payment is due from the buyer. 8. Refers to credit terms where goods in transit are owned by the seller.

1. Sales discount 2. Discount period 3. FOB shipping point 4. Merchandise inventory 5. Merchandiser 6. Perpetual inventory system 7. Credit period 8. FOB destination

Assume that Wally World uses a perpetual weighted average inventory system. During the period, it had two sales. Calculate the average cost per unit on hand as of June 30 when it made its second sale. Jun 1 Beginning Inventory 10 @ $12 Jun 5 Purchase 10 @ $15 Jun 8 Sale 6 units Jun 28 Purchase 10 @$18 Jun 30 Sale 8 Units

15.375/unit Reason: (10x12)+(10x15) =$270/20 units = $13.50 per unit as of 6/8 sale. Sold 6x13.50 = $81 on 6/8. New balance = $270-81 = $189/ Purchased 10 x $18 = $180 on 6/28. New average = $180+189 = $369/24 units = $15.375 per unit

Given the following information for Q-Mart, calculate its gross margin ratio. - Net sales $10,000 Cost of goods sold $3200

32% Reason: $10,000 - $3200= $6,800/10,000 = 68% 100% - 68% = 32%

Given the following information for Fawnworks, calculate its gross margin ratio. -Net Sales $15,500 - Cost of goods sold $2,500

83.9% Reason: $15,500 - $2,500 = $13,000. $13,000/$15,500 = 83.9%

Given the following information for Fawnworks, calculate its gross margin ration. - Net sales $15,500 - Cost of goods sold $2,500

83.9% Reason: $15,500 -2,500 = 13,000 / $15,500 = 83.9%.

Determine which of the following statements are correct regarding the difference between physical flow and the cost of flow of inventory. (Check all that apply.)

A business may adopt any cost flow assumption when accounting for perishable items. Cost flow is an assumption about which goods/items are sold. Perishable items usually have an actual physical flow of FIFO. Physical flow refers to the actual movement of goods.

Why is it important for a business's success to have a high gross margin?

A merchandiser must make a sufficient profit on the sale of its merchandise to cover the other expenses of its business.

What is a sales return?

A sales return refers to merchandise that customers return to the seller after a sale.

Which of the statements below explain why LCM is used. (Check all that apply.)

Assets are not shown at an inflated value on the balance sheet, but rather at lower of cost or replacement cost. Companies cannot report inventory on a balance sheet that is higher than replacement cost. LCM allows companies to recognize a loss in value of an asset in the period the loss occurs.

Identify the financial statements of a merchandiser. (Check all that apply.)

Balance sheet Statement of retained earnings Income statement

Chapter 4 Accounting for Merchandising Operations Chazen Company's inventory balance at the beginning of the year was $9,000. During the year, the company had Purchases of $60,000 and Purchases Returns and Allowances of $5,000. The company's inventory balance at the end of the year is $7,000. Compute cost of goods sold for the year assuming Chazen uses the periodic inventory system.

Beginning inventory $9,000 Purchases 60,000 Less: Purchases returns and allowances 5,000 Cost of goods available for sale 64,000 Less ending inventory 7,000 Cost of goods sold $57,000

Explain the inventory and cost of goods sold relationship by selecting the correct formula below.

Beginning inventory + Net purchases - Ending inventory = Cost of goods sold

Select the statements below that correctly describe the flow of costs in a merchandiser's accounting cycle. (Check all that apply.)

Beginning inventory + net purchases = Merchandise available for sale. Merchandise that is purchased becomes an asset reported on the balance sheet. Ending inventory + Cost of good sold = Total merchandise available for sale. Merchandise that is sold becomes an expense reported on the income statement

In year 1, Shell Company understated their ending inventory. What is the effect of this error in year 2?

Beginning inventory is understated. Cost of goods sold is understated.

The discount period is the time _____ (before/between) the invoice date and is specified date on which the payment amount owed can be _____ (increased/reduced) because of early payment.

Blank 1: between Blank 2: reduced

A purchase return refers to a merchandise a _____ (buyer/seller/creditor) purchased, but then returns to the _____ (buyer/seller/creditor) for a refund of the purchase price or reduction in the amount owed.

Blank 1: buyer Blank 2: seller

Explain what a debit memorandum by completing the following sentence. When a buyer returns or takes an allowance on merchandise, the _____ (buyer/creditor/seller) issues a debit memorandum to inform the _____ (buyer/creditor/seller) of a debit made to the seller's account in the buyer's records.

Blank 1: buyer Blank 2: seller

The formula for the acid-test ratio is computed as _____ + cash equivalents + short-term investments + current receivables)/current liabilities.

Blank 1: cash

The owner of consigned goods is called the _____ and the one who sells goods for the owner is called the _____

Blank 1: consignor Blank 2: consignee

Recall that Merchandise Inventory is considered a(n) (current/plant/intangible) ___ asset on the (balance/income) ___ (sheet/statement) ___ of a merchandiser using the periodic inventory system.

Blank 1: current Blank 2: balance Blank 3: sheet

When purchase costs are (rising/declining) _____, LIFO will report the lowest cost of goods sold yielding the highest gross profit and net income.

Blank 1: declining

Define equity by completing the following statement. Equity is the _____ (creditor's/litigator's/owner's) claim on the assets of a business and is reported in the _____ (asset/equity/liability) section of a balance sheet.

Blank 1: owner's or owners Blank 2: equity

Show your understanding of the ownership of goods in transit by completing the following statement. If goods are shipped FOB shipping point, then _____ (purchaser/seller) is responsible for paying freight charges and the _____ (purchases/seller) will not include the merchandise in their inventory.

Blank 1: purchaser Blank 2: seller

When purchase costs are (rising/declining)_____ , FIFO will report the lowest cost of goods sold yielding the highest gross profit and net income.

Blank 1: rising

A _____ discount benefits a seller though earlier cash receipts and reduced collection efforts.

Blank 1: sales or cash

Explain what a credit memorandum is by completing the following sentence. When a seller grants an allowance on a previous sale, the _____ (customer/creditor/seller) issues a credit memorandum to inform the _____ (customer/seller) of a credit made to the buyer's Account Receivable in the seller's records.

Blank 1: seller Blank 2: customer

Summarize the internal control principle of establishing responsibility by completing following sentence. Proper internal control means that responsibility for a _____ (task/shortage/sale) is clearly _____ (posted/established/compensated) and assigned to one person.

Blank 1: task Blank 2: established

Assuming purchase costs are rising in a periodic inventory system, determine which of the statements below are correct regarding the cost of goods sold under FIFO, LIFO and weighted average cost flow methods. (Check all that apply.)

Companies using FIFO will report the smallest cost of goods sold. Companies using FIFO will pay higher taxes than companies using LIFO, assuming all else being equal. Companies using FIFO will report the highest gross profit and net income. Weighted average cost of goods sold will be between FIFO and LIFO costs of goods sold.

Assuming purchase costs are declining and a periodic inventory system is used, determine the statements below which correctly describe what is happening to cost of goods sold under FIFO, LIFO and weighted average cost flow methods. (Check all that apply.)

Companies using LIFO report the smallest cost of goods sold. Companies using LIFO will pay higher taxes than companies using FIFO, assuming all else being equal. Weighted average cost of goods sold will be between FIFO and LIFO costs of goods sold. Companies using LIFO will report the highest ending inventory on their balance sheets, as compared to companies using FIFO or weighted average.

Determine which of the following statements is correct regarding cosigned.

Consigned goods should be included in the consignor's inventory

XYZ Company made a mistake in counting its ending inventory. Determine which of the items below will be affected by this error. (Check all that apply.)

Cost of goods sold Net income Current assets

In year 1 ending inventory is overstated by $2,000. Explain the effect on cost of goods sold, gross profit and net income in year 1 and year 2. Select all answers that apply.

Cost of goods sold in the following year, year 2, will be overstated. Gross profit in the next year, will be understated. Gross profit in the current year, year 1, will be overstated.

Grow R Us overstated its ending inventory in the current year by $5,000. The company incorrectly reported $100,000 of net income. Explain the consequences of the error on the current period's income statement.

Cost of goods sold will be too low by $5,000

Cake Mart understated its ending inventory in the current year by $5,000. The company incorrectly reported net income of $100,000. Determine the effect of the error on the financial statements.

Cost of goods will be too high by $5,000, and this caused net income to be understated by $5,000.

Identify the statements below that are correct regarding the closing entries for a merchandiser using the perpetual inventory system. (Check all that apply.)

Costs of good sold is closed with the expense accounts. The Dividends account is closed to Retained Earnings. Sales Returns and Allowances is closed with the expense accounts. Sales is closed as a revenue account. Sales Discounts is closed with the expense accounts.

If ending inventory at the end of the year is understated, what is the effect on cost of goods sold and net income?

Costs of goods sold will be overstated and net income will be understated.

Dogs R Us uses the perpetual inventory system to account for its merchandise. A customer returned merchandise. Assuming the purchase was originally bought on the credit for $400 with a cost to Dogs R Us of $100, demonstrate required journal entry of Dogs R Us to record the return by selecting all of the correct actions below. (Check all that apply.)

Credit Accounts Receivable $400 Credit Cost of Gods Sold $100 Debit Sales Returns and Allowances $400

X-Mart uses the perpetual inventory to account for its merchandise. A customer who purchased merchandise on account requested an allowance on a merchandise purchase due to its poor quality, but he dud nit return goods back to X-Mart. Assuming that X-mart gives an allowance of $50 on the merchandise, demonstrate the required journal entry on X-Mart's boos to record the allowance by selecting all of the correct actions below. (Check all that apply.)

Credit Accounts Receivable $50

Sally Beauty Warehouse uses the perpetual inventory system to account for its merchandise. On Nov 2, it sold $700 of merchandise on credit with terms of 2/15,n/30. Demonstrate the required journal entry to record the receipt of payment from the customer on Nov 13, by selecting all of the correct actions below. (Check all that apply.)

Credit Accounts Receivable $700 Debit Cash $686 Debit Sales Discount $14

Juice Drinks uses the periodic inventory system to account for its merchandise purchases. On December 1, it purchased $250 of merchandise with terms of 4/10,n/30. If payment is made on December 5, demonstrate the required journal entry to record the payment by selecting all of the correct actions below. (Check all that apply.)

Credit Cash $240 Credit Purchase Discounts $10

X-Mart uses the perpetual inventory system to account for its merchandise. On June 1, it sold $7,000 of merchandise for cash. The original cost of the merchandise to X-Mart was $500. Demonstrate the required journal entry to record the sale and the cost of the sale by selecting all of the correct actions below. (Check all that apply.)

Credit Merchandise Inventory $500. Debit Cash $7,000.

X-Mart uses the perpetual inventory system to account for its merchandise. On May 1, it sold $400 of merchandise on account with terms of 2/15, n/40. On May 3, X-Mart returned $50 of merchandise due to defect. Assuming that the purchase was paid for within the discount period, demonstrate the required journal entry for X-Mart to record the payment by selecting all of the correct actions below. (Check all that apply.)

Credit Merchandise Inventory for $7. Reason: Take discount on $350 only. ($350-$7 =$343)

X-Mart uses the periodic inventory system to account for its merchandise. On May 1, it sold $1,400 of merchandise on credit. The original cost of the merchandise to X-Mart was $500. Demonstrate the required journal entry to record the sale by selecting all of the correct actions below. (Check all that apply.)

Credit Sales $1,400 Debit Account Receivable $1,400 Debit Cost of Goods Sold $500 Credit Merchandise Inventory $500 Reason: Under a periodic, cost of goods sold is not recorded at the time of each sale

XYZ Company uses the periodic inventory system to account for its merchandise purchases. A physical count of inventory at year end revealed that $6,000 of inventory was on hand. Given the partial list of accounts below, show your understanding of the entry to close the temporary debit balance accounts and update the Merchandise Inventory account by selecting all of the correct answers below. (Check all that apply.) Account; Debit; Credit Sales Returns and Allowances $1,000 Sales Discounts; $500 Wages Expense; $300 Purchases; $36,000 Merchandise Inventory (Beg. Balance); $5,000

Credit Sales Discounts $500 Credit Purchases $36,000 Credit Merchandise Inventory for the beginning balance $5,000

Choose the formula below that is used to calculate the current ratio of a business.

Current assets divided by current liabilities

Define "current" as it applies to assets and liabilities on a classified balance sheet.

Current items are those expected to come due within one year or the company's operating cycle, whichever is longer.

What are current liabilities? (Check all that apply.)

Current liabilities are obligations due to be paid within one year. Current liabilities are reported in the order those to be settled first.

On Dec. 7, Toys R Fun purchased $1,000 of merchandise with terms of 2/10,n/30. If payment is made on December 30, demonstrate the required journal entry for Toys R Fun to record the payment under the perpetual inventory system.

Debit Accounts Payable $1,000; credit Cash $980; credit Merchandise Inventory $20. Reason: No discount is earned because payment is after 10 days.

On Dec. 20, X-Mart returned $100 of defective merchandise to its supplier. Demonstrate the required journal entry that X-Mart will record for the return, assuming the purchase was made on account and that X-Mart uses the periodic inventory system.

Debit Accounts Payable $100 and credit Purchase Returns $100.

Juice Drinks returned $25 of defective merchandise to its supplier. Demonstrate the required journal entry that Juice Drinks will record for the return, assuming the purchase was made on account and that Juice Store uses the periodic inventory system.

Debit Accounts Payable $25 and credit Purchases Returns and Allowances $25.

Juice Drink uses the periodic inventory system to account for its merchandise purchases. On December 1, it purchased $250 of merchandise with terms of 4/10,n/30. If the payment is made on December 5, demonstrate the required journal entry to record the payment by selecting all of the correct actions below. (Check all that apply.)

Debit Accounts Payable $250 Credit Cash $240

X-Mart uses the perpetual inventory system to account for its merchandise. On May 1, it purchased $400 of merchandise on account with terms of 2/15, n/40. On May 3, X-Mart returned $50 of merchandise due to defect. Assuming that the purchase was paid for within the discount period, demonstrate the required journal entry for X-Mart to record the payment by selecting all of the correct actions below. (Check all that apply.)

Debit Accounts Payable $350. Credit Purchase Discounts 7. Credit Cash $343

X-Mart uses the perpetual inventory system to account for its merchandise. On may 1, it sold $1,400 of merchandise on credit. The original cost of the merchandise to X-Mart was $500. Demonstrate the required journal entry to record the sale and the cost of the sale by selecting all of the correct actions below. (Check all that apply.)

Debit Accounts Receivable $1,400

X-Mart uses the perpetual inventory system to account for its merchandise. On June 1, it sold $1,400 of merchandise for cash. The original cost of the merchandise to X-Mart was $500. Demonstrate the required journal entry to record the sale and the cost of the sale by selecting all of the correct actions below. (Check all that apply.)

Debit Cash $1,400 Debit Cost of Goods Sold $500 Credit Merchandise Inventory $500

X-Mart uses the perpetual inventory system to account for its merchandise. On May 1, it sold $1,400 of merchandise on credit with terms of 1/10,n/40. Demonstrate the required journal entry to record the receipt of payment on May 25 by selecting all of the correct actions below. (Check all that apply.)

Debit Cash $1,400. Credit Accounts Receivable $1,400

On June 5, Jo's Market sold $1,000 of goods on credit with terms of 2/10,n/30. How will Ho's Market record the customer's payment on June 8?

Debit Cash $980; debit Sales Discount $20; and credit Accounts Receivable $1,000

X-Mart uses the perpetual inventory system to account for its merchandise. On May 1, it sold $1,400 of merchandise on credit. The original cost of the merchandise to X-Mart was $500. Demonstrate the required journal entry to record the sale and the cost of the sale by selecting all of the correct actions below. (Check all that apply.)

Debit Cost of Goods Sold $500 Credit Merchandise Inventory $500

X-Mart uses the perpetual inventory system to account for its merchandise. On May 1, it sold $1,400 of merchandise on credit. The original cost of the merchandise to X-Mart was $500. Demonstrate the required journal entry to record the cost of the sale by selecting all of the correct actions below. (Check all that apply.)

Debit Cost of Goods Sold $500. Credit Merchandise Inventory $500

Information about q_mart's inventory appears in the following table. When LCM is applied to the whole inventory, the Merchandise Inventory account must be adjusted from the $1,700 recorded cost down to the $1,620 market amount. Demonstrate the required adjusting entry by choosing the correct answer below. Items Units Unit Cost Market Total Cost Total Market Bikes: Bike A 10 $50 $52 $500 $520 Bike B 20 $30 $28 $600 $560 Scooters: Scooter A 10 $10 $9 $100 $90 Scooter B 25 $20 $18 $500 $450 Totals $1,700 $1,620

Debit Cost of Goods Sold $80.

Juice Drinks received a $50 freight bill for merchandise it purchased with freight terms of FOB shipping point. Assuming it paid the bill immediately, demonstrate the journal entry required to record the freight charges, assuming the periodic inventory system is used.

Debit Merchandise Inventory $50 and credit Cash $50 Reason: Under the periodic inventory system. the cost of freight is charged to Transportation.

X-Mart purchased $300 of merchandise on account. Demonstrate the journal entry to record this transaction, assuming the periodic inventory system is used.

Debit Purchases $300 and credit Accounts Payable $300.

J-Lo Company purchased $550 of merchandise on account. Demonstrate the journal entry to record this transaction under the periodic inventory system.

Debit Purchases $550 and credit Accounts Payable $550 Reason: The periodic system uses a temporary Purchases account for merchandise purchases.

X-Mart uses the perpetual inventory system to account for its merchandise. On May 1, it sold $1,400 of merchandise on credit. The original cost of the merchandise to X-Mart was $500. Demonstrate the required journal entry to record the sale and the cost of the sale by selecting all of the correct actions below. (Check all that apply.)

Debit Sales $1,400 Credit Cost of Goods Sold $500 Reason: Sales needs to be credited. Cost of Goods Sold need to be debited.

Dogs R US uses the perpetual inventory system to account for its merchandise. A customer returned merchandise. Assuming that the purchase was originally bought on credit for $400 with a cost to Dogs R US of $100, demonstrate required journal entry of Dogs R US to record the return by selecting all of the correct actions below. (Check all that apply.)

Debit Sales Returns and Allowances $400

On Jan 5, a customer returned merchandise that had been purchased earlier on credit. The original sale was for $500, and the cost to the seller was $150. Demonstrate the required journal entry to record the return on the books of the seller, assuming the goods can be sold to another customer.

Debit Sales Returns and Allowances $500, debit Merchandise Inventory $150; credit Accounts Receivable $500; and credit Cost of Goods Sold $150.

On Jan 5, a customer returned merchandise that had been purchased earlier on credit. The original sale was for $500, and the cost to the seller was $150. Demonstrate the required journal entry to record the return on the books of the seller, assuming the goods can be sold to another customer.

Debit Sales Returns and Allowances $500; debit Merchandise Inventory $150; credit Accounts Receivable $500; and credit Cost of Goods Sold $150.

Dogs R US uses the periodic inventory system to account for its merchandise. A customer returned merchandise purchased on credit for $400 with a cost to Dogs R US of $100 and the returned merchandise can be sold to other customers, demonstrate the required journal entry to record the return by selecting all of the correct actions below. (Check all that apply.)

Debit Sales Returns/Allowances $400 Credit Accounts Receivable $400 Debit Merchandise Inventory $100 Credit Cost of Goods Sold $100

A journal entry for sale of merchandise on account will result in all of the following: (Check all that apply.)

Debit to Cost of Goods Sold Credit to Sales Debit Accounts Receivable

A journal entry for a sale of merchandise on account will result in all of the following: (Check all that apply.)

Debit to Cost of Goods Sold Debit to Accounts Receivable Credit to Sales

Sticky Company's merchandise inventory balance at year end is $15,050, but a physical count reveals that only $15,000 of inventory exists. The adjusting entry to record the shrinkage includes: (Select all that apply.)

Debit to Cost of Goods Sold for $50. Credit to Merchandise inventory for $50

Jeff, a shareholder of a business, received dividends of $100. How would this affect the total equity of the business?

Dividends would be increased and total equity would decrease as well.

Determine which statements below are correct regarding merchandise available for sale during a period. (Check that apply.)

Ending inventory + Cost of goods sold = Merchandise available for sale Beginning inventory + Net purchases = Merchandise available for sale

Identify the principles of internal controls by selecting the correct answers below. (Check all that apply.)

Establish responsibilities. Main adequate records. Insure assets. Perform regular and independent reviews. Apply technological controls.

Which of the following are principles of internal control?

Establish responsibilities. Maintain adequate records. Perform regular and independent reviews.

Why would the physical count of inventory be different than what is shown in perpetual inventory records? (Check all that apply.)

Events such as errors Events such as theft Events such as damage Events such as loss

Which of the following lists the four methods used to assign costs to inventory and to cost of goods sold?

FIFO, LIFO. weighted average and specific identification

Which of the following statements is correct regarding goods in transit?

Goods shipped FOB shipping point will be included in the buyer's inventory.

Which statement below describes the internal control procedure of insuring assets and bonding key employees?

Insuring assets against casualty and bonding employees who handle cash, reduces risk of loss.

Recall the formula for computing a company's inventory turnover ratio.

Inventory turnover = Cost of goods sold/Average inventory

Identify the ways in which lower of cost or market can be applied to merchandise inventory. (Check all that apply.)

It can be applied to the inventory as a whole. It can be applied to major categories of items. It can be applied to each item individually.

Summarize the internal control procedure of maintaining adequate records by selecting the correct answers below. (Check all that apply.)

Keeping detailed records make it unlikely that assets are lost or stolen without detection. Reliable records are a source of information that managers use to monitor activities.

Review the steps below that apply LCM to individual items of inventory. Place them in the correct order of occurrence.

List the number of units of each product. List the cost of each item. List the market price of each item. Compute total cost and total market value for each item. Compare recorded cost of each inventory item with its replacement cost. List lower of cost or market. Adjust inventory downward when market is less than cost.

Determine which of the statements below are correct regarding the current ratio. (Check all that apply.)

The current ratio can affect interest rates charged by creditors when lending money to a business. The current ration is one measure of a company's ability to pay its short-term debts. The current ratio helps a supplier determine whether it wants to extend credit to a customer. A current ratio of less than 1.0 would indicate that a company would have a problem paying off short term debt.

Q-mart failed to include inventory that was kept in a separate warehouse in its 12/31 end-of-the-period inventory count. Consequently, the ending inventory on 12/31 was understated on the balance sheet. (Check all that apply.)

The current year's cost of goods will be too high. The current year's net income will be too low.

Which of the following statements correctly explains what the inventory turnover ratio assesses.

The inventory turnover ration assesses whether management is doing a good job controlling the amout of inventory.

Which statement(s) below is (are) correct regarding the purpose of taking a physical inventory count? (Check all that apply.)

The physical count is used to adjust the inventory account balance to the actual inventory available. The physical count is used to determine if there has been any theft, loss, damage or errors in inventory.

Review the statements below and select the ones that are correct regarding the days' sales in inventory ratio. (Check all that apply.)

The ratio is often viewed as a measure of the buffer against out-of-stock inventory. The ratio estimates how many days it will take to convert inventory into accounts receivable cash. The ratio reveals how much inventory is available in terms of the number of days' sales. The ratio is useful in evaluating how quickly inventory is sold.

Which of the statements below summarize why a seller would give a sales allowance? (Check all that apply.)

The seller wants to avoid future lost sales. In order to entice a customer to keep damaged or defective merchandise, the seller is willing to decrease selling price. Sold merchandise was defective or unacceptable The seller wants to keep a customer happy.

Given the following information, analyze XYZ Company's liquidity. (Check all that apply.) Year 2013 - Total quick assets $30,000 - Total current assets $40,000 - Total current liabilities $22,000 - Acid-test ratio 1.36 - Current ration 1.82 - Industry acid-test ratio .70 - Industry current ration 1.65

They have sufficient quick assets to pay off short-term debit if needed. They are more liquid than others in their industry.

Sparky's incorrectly included inventory that was on consignment in its ending inventory count. Consequently, the ending inventory was overstated on the balance sheet. Explain how this error will affect this year's income statement. (Check all that apply.)

This year's net income will be too high. This year's cost of goods sold will be too low.

Q-mart failed to include inventory that was kept in a separate warehouse in its end-of-the-period inventory count. Explain how this error will affect this year's balance sheet. (Check all that apply.)

This year's total equity will be understated. This year's total assets will be understated.

What is the purpose of internal controls?

To help managers know if the business is receiving the assets and services it has paid for.

True or false: The journal entry required when a customer is given an allowance in cash is the same under both a periodic and perpetual system.

True

True or false: An owner of a small business usually knows if the business is receiving the assets and services the company paid for.

True Reason: A small business owner usually knows if the business is receiving the assets and services the company paid for. Most companies, must rely on internal controls.

True or false: If Dogs R Us overstates ending inventory on the balance sheet then total equity on the balance sheet will be overstated as well.

True Reason: Remember that Asset = Liabilities + Equity. If assets are too high, then equity must also be too high in order to keep the equation equal. If ending inventory is too high, then cost of goods sold is too low, hence net income and equity will be too high.

There are advantages to using each of the four inventory costing methods. Identify the statements below that are correct regarding these advantages. (Check all that apply.)

Weighted average tends to smooth out erratic changes in costs. FIFO assigns an amount to inventory in the balance sheet that approximates its current cost. Reason: This is because the earlier costs are sold, so the latest costs are what are left in ending inventory.

Identify the statements below that are correct regarding the advantages of the four inventory methods using a perpetual inventory system. (Check all that apply.)

Weighted average tends to smooth out erratic changes in costs. FIFO assigns an amount to inventory on the balance sheet that approximates its current cost.

The adjusting entry to decrease merchandise inventory due to LCM computations, includes

a credit to Merchandise inventory

A customer of Juice Store returned merchandise with a cost of $25 and a selling price of $40. Juice Store gave the customer a cash refund because the customer had previously paid their account in full. The journal entry to record the cash refund to the customer includes:

a debit to Sales Return and Allowances and a credit to Cash for $40

Chapter 4 Accounting for Merchandise Operations Prepare journal entries to record each of the following transactions. The company records purchases using the gross method and a perpetual inventory system. May 1 Purchased merchandise with a price of $1,020 and credit terms of n/30. May 7 Returned merchandise that had a price of $210. May 31 Paid the amount due from the May 1 purchase, minus the 7 return

May 1 Merchandise Inventory 1,020 Debit Accounts payable 1,020 Credit May 7 Accounts payable 210 Debit Merchandise inventory 210 Credit May 31 Accounts payable 810 Debit Cash 810 Credit

The balance sheet of a merchandiser and a service business have on major difference. Select the item below that would appear only on a merchandiser's balance sheet.

Merchandise inventory

A multiple-step income will have all of the following main parts except:

Net Sales Reason: A multiple-step income statement will have all of the following main parts except net sales. The multiple-step income statement will have gross profit, income from operations, and net income.

Which of the following equations correctly identify the cost flow of a merchandising company?

Net purchases plus beginning inventory equals merchandise available for sale

What defines a long-term investment?

Notes receivable and stock and bond investments are assets that are expected to be held for more than one year. Long-term investments are sometimes referred to as noncurrent investments.

Name the temporary accounts used to record the costs of merchandise purchased in a periodic inventory system. (Check all that apply.)

Purchase returns and allowances Purchases discounts Purchases Transportation-in

How has the Sarbanes-Oxley Act (SOX) impacted the internal control of companies?

SOX requires that auditors evaluate internal controls. SOX requires that companies have effective internal controls.

Which of the following items are included in a merchandising company's income statement but are not included in a service company's income statement? (Check all that apply.)

Sales return Gross profit Cost of goods sold

Identify the items or sub-headings below that would appear on a multiple-step income statement. (Check all apply.)

Selling expenses Income from operations Gross profit Cost of goods sold General and administrative expenses Net sales

Chapter 4 Accounting for Merchandise Operations Prepare journal entries to record each of the following transactions. The company records purchases using the gross method and a perpetual inventory system. September 15 Purchased merchandise with an invoice price of $75,000 and credit terms of 2/5, n/15. September 29 Paid supplier the amount owed on the September 15 purchase.

Sept 15 Merchandise inventory 75,000 Debit Accounts payable 75,000 Credit Sept 29 Account payable $75,000 Debit Cash $75,000 Credit

Recall the four inventory costing methods used to assign costs to inventory and cost of goods sold under the periodic inventory system. (Check all that apply.)

Specific identification Weighted average First-in, first-out Last-in, first out

One identical unit is purchased on each of the following three dates and at the respective costs: June 1 at $10 June 2 at $15 July 4 at $20 The company sells two units during the period. Conclude which inventory items are sold first and which unit remains in ending inventory if the company is using the FIFO cost flow assumption.

The June 1 at $10 and the June 2 at $15 are both sold; the July 4 unit remains in ending inventory.

Summarize a periodic inventory system by selecting all of the correct statements below. (Check all that apply.)

The Purchase Discounts account is used during the period. The Purchases account is used during the period. The Purchases Returns and Allowances account is used during the period. The Merchandise Inventory account is updated only at the end of the period. The balance in the Merchandise Inventory account remains the beginning balance until the end of the period. Cost of goods sold is computed at the end of the period.

Which of the statements below summarizes what the acid-test ratio measures?

The acid-test ratio measures a merchandiser's ability to pay its current liabilities

The stockholders of a business received a $1000 dividend. How would this affect the total equity of the business?

Assets would be decreased and total equity would decrease as well.

Revenues cause equity to _____ and they are increased on the _____ side of the T-account.

Blank 1: increase Blank 2: right

The time span from when cash is used to purchase goods until cash is received from the sale of goods is called _____ cycle.

Blank 1: operating

Current items can be described as those expected to come due within one _____ (month/year) and are listed in the order of how _____ (quickly/slowly) they could be converted to or paid in cash.

Blank 1: year Blank 2: quickly

A merchandiser has four closing journal entries at the end of an accounting cycle. Select the correct entries below. (Check all that apply.)

Close the income summary account. Close revenue accounts. Close the dividends account. Close expense accounts.

Determine which statements below are correct regarding merchandise available for sale during a period. (Check all that apply.)

Ending inventory + Cost of goods sold = Merchandise available for sale Beginning inventory + Net purchases = Merchandise available for sale

Which of the following statements is correct regarding expenses?

Expenses are increased on the left side of the T-account because they decrease equity

If the seller is responsible for the shipping costs of merchandise sold, the shipping terms will be specified as:

FOB destination

Demonstrate your knowledge of preparing a post-closing trial balance by selecting the accounts below that would be included on it. (Check all that apply.)

Liability accounts Asset accounts Permanent accounts

Identify the accounts below that would be classified as long-term investments. (Check all that apply.)

Notes receivable due in 2 years Investments in bonds

Identify the accounts below that would be classified as current liabilities on a classified balance sheet. (Check all that apply.)

Taxes payable Accounts payable Notes payable (due in three months) Unearned rent

Current assets are

cash and other resources that are expected to be sold, collected or used within one year

On May 14, X-Mart purchased $500 of merchandise with terms of 3/15,n/40. If payments is made on May 28, calculate the purchase discount that may be taken by X-Mart.

$15 Reason: $500 x .03 = $15

Calculate the total cost of merchandise purchased using the information in the following table: -Invoice cost of merchandise purchases $40,000 - Purchase discounts received $3,000 - Cost of transporation-in(shipping) $500 - Costs of purchase returns and allowances $100

$37,400 Reason: $40,000 - $3,000 - $100 + $500 = $37,400

On June 5, X-Mart purchased $400 of merchandise with terms of 2/10,n/30. If payment is made on June 11, calculate the purchased discount that may be taken by X-mart.

$8. Reason: 400 x .02 = $8. Terms are 2/10 which means that they have 10 days in order to take the discount

Determine which of the definition to the right fo with the entity on the left. 1.Retailer 2. Wholesaler 3.Merchandiser

1. An intermediary that buy products from manufacturers or wholesalers and sells them to consumers 2. Am intermediary that buys products from manufacturers and sells them to retailers 3. Earns net income by buying and selling products.

Brown Co. had current assets of $15,000, total assets of $30,000 and current liabilities of $9,000 at the end of the year. The current ratio for the period is:

1.67 Reason: 15,000 /$9000 = 1.67

Given the following information for Mouse Inc., calculate its profit margin for the year. $ in thousands Beg Year End Year Net income. $500 $450 Net sales 3500 3650 Accounts Rec. 2150 1500

14.29% Reason: Net income/Net sales $500/3,500 = 14.29%

Identify the statements below which summarize what cash discounts are

A buyer views a cash discount as a purchase discount. Cash discounts are described in credit terms. A seller views a cash discount as a sales discount. A reduced payment applies to the discount period. Sellers can granted a cash discount to encourage buyers to pay earlier.

at year-end, ABC Company is beginning its closing process. Use the following account balances to demonstrate the closing of its revenue accounts. (Check all that apply.) -Service Fees $15000 Credit -Consulting Revenue $12,000 Credit -Supplies Expense $900 Debit -Rent Expense $600 Debit - Dividends $80 Debit

A credit to Income Summary for $27,000

A company had the following selected balances: - Service Revenue $4,000 Credit - Rental Revenue $2,000 Credit - Wages Expense $500 Debit - Utilities Expense $100 Debit - Dividends $80 Debit The first closing journal entry would include which of the following?

A credit to Income Summary for $6,000

Identify the accounts below that would be classified as current liabilities on a classified balance sheet. (Check all that apply>)

Accounts payable Taxes payable Unearned rent

Describe an unclassified balance sheet.

An unclassified balance sheet is one whose items are broadly grouped into assets, liabilities, and equity.

Toys R Fun purchased $4,000 of merchandise and paid immediately. To record this transaction, Toys R Fun's accountant would debit the ____ (Merchandise Inventory/Accounts Payable/Cash) account and credit the _____ (Cash/Merchandise Inventory/Accounts Payable) account.

Blank 1: Merchandise Inventory Blank 2: Cash

A cash discount can be summarized as a discount given to ____________ (buyers/creditors/sellers) to encourage them to pay _____________ (earlier/later/less/more).

Blank 1: buyers Blank 2: earlier

To compute net income for a merchandiser, you will start with net sales, subtract cost of goods sold and subtract _____

Blank 1: expenses or expense

A post-closing trial balance is a list of _____ (permanent/temporary) accounts and their balances from the _____ (journal/ledger) _____ (after/before) all _____ (adjusting/closing) entries have been journalized and posted.

Blank 1: permanent Blank 2: ledger Blank 3: after Blank 4: closing

An invoice is referred to as a _____________ invoice for a buyer and as a ______________ invoice for the seller.

Blank 1: purchase Blank 2: sales

Sales is a(n) ___ (expense/revenue/asset) account and is reported on the ___ (income/balance) ___ (statement/sheet).

Blank 1: revenue Blank 2: income Blank 3: statement

Identify the accounts below that would be classified as long-term liabilities on a classified balance sheet. (Check all that apply.)

Bonds payable (due in five years)

Identify which of the accounts below would be classified as a current asset. (Check all that apply.)

Cash Prepaid rent Office supplies Accounts receivable

Cost of goods sold is characterized by which of the following statements? (Check all that apply.)

Cost of goods is an expense reported on the income statement. Cost of goods sold includes the expenses of buying and preparing an item for sale. Cost of goods sold is used to figure gross profit. Cost of goods sold is also called cost of sales.

Which of the statements below are correct regarding cost of goods sold?

Cost of goods sold is the expense of buying and preparing merchandise

Which of the following costs are included in merchandise inventory? (Check all that apply.)

Costs necessary to ready the merchandise for sale Shipping fees charged by the vendor Purchase costs Taxes assessed on the merchandise

LOL Music Store uses the perpetual inventory system to account for its merchandise. On November 17, it purchased $1,000 of merchandise with terms of 2/5,n/60. If payment is made on November 21, demonstrate the required journal entry to record the payment by selecting all of the correct actions below. (Check all that apply.)

Credit Purchased Discounts $20. Debit Accounts Payable $1000 Credit Cash $980

The following categories are on a classified balance sheet. List them in order that they would appear.

Current assets Long-term investments Plant assets Intangible assets Current liabilities Long-term liabilities

The following categories are on a classified balance sheet. List them in the order that they would appear.

Current assets Long-term investments Plant assets Intangible assets Current liabilities Noncurrent liabilities

A classified balance sheet has several categories for assets and liabilities including: (Check all that apply.)

Current assets Noncurrent (long-term) liabilities Plant assets Long-term investments

Regarding the order assets and liabilities on a classified balance sheet, select the statements which are correct. (Check all that apply.)

Current assets are listed before noncurrent assets. Current liabilities are listed before noncurrent liabilities Current assets are listed, followed by current liabilities. All noncurrent assets and liabilities are listed next.

Regarding the order of assets and liabilities on a classified balance sheet, select the statements which are correct. (Check all that apply.)

Current assets are listed, followed by current liabilities. All noncurrent assets and liabilities are listed next. Current assets are listed before noncurrent assets. Current liabilities are listed before noncurrent liabilities

LOL Music Store uses the perpetual inventory system to account for its merchandise. On November 17, it purchased $1,000 of merchandise with terms of 2/5,n/60. If payment is made on December 21, demonstrate the required journal entry to record the payment by selecting all of the correct actions below. (Check all that apply.)

Debit Accounts Payable $1000

On Dec. 20, X-Mart received a $100 allowance because the merchandise it purchased on account, earlier in the month, was of poor quality. Demonstrate the required journal entry on X-Mart's books for the allowance assuming the perpetual inventory method.

Debit Accounts Payable $100; credit Merchandise Inventory $100

Jerry's Flowers sold and shipped merchandise across the country to a buyer. The terms were FOB destination. Assuming it paid the bill immediately, demonstrate the journal entry required by Jerry's Flowers under the perpetual inventory system to record the freight charges.

Debit Delivery Expense; credit Cash

ABC Mart received a $20 freight bill for merchandise it purchased with freight terms of FOB shipping point. ABC Mart uses a perpetual inventory system. Assuming it paid the bill immediately, demonstrate the journal entry required to record the freight charges.

Debit Freight in $20; credit Cash $20 Reason: Under the perpetual inventory method, you will debit Merchandise Inventory $20 and credit cash $20.

X-Mart purchased $300 of merchandise on credit. Demonstrate the journal entry to record this transaction, assuming the perpetual inventory system is used.

Debit Merchandise Inventory $300; credit Accounts Payable $300

X-Mart purchased $300 of merchandise and paid immediately. Demonstrate the journal entry to record this transaction, assuming the perpetual inventory system is used.

Debit Merchandise Inventory $300; credit Sales $300 Reason: Debit Merchandise Inventory $300; credit Cash $300

A company had the following selected balances: -Services Revenue $4000 Credit -Rental Revenue $2,000 Credit - Wages Expense $500 Debit -Utilities Expense $100 Debit -Dividends $80 Debit

Debit Retained Earnings $80; Credit Dividends $80

On Dec 7, Toys R Fun pruchased $1000 of merchandise with terms of 2/10,n/30. If payment is made on December 30, demonstrate the required journal entry for Toys R Fun to record the payment under the perpetual inventory system.

Debt Accounts Payable $1,000; credit Cash $980; credit Merchandise Inventory $20. Reason: No discount is earned because payment is made after 10 days.

At year-end, ABC Company is completing its closing process. Use the following account balances to demonstrate the closing of the Dividends account. (Check all that apply.) -Consulting Fees $5,000 Credit - Rental Revenue $2,000 Credit - Wages Expense $700 Debit - Rent Expense $1.900 Debit - Dividends $500 Debit

Debt Retained Earnings $500.

Identify the statements below which are correct regarding a merchandiser's multi-step income statement.

Expenses are subtracted from gross profit in order to calculate net income. Cost of goods sold is subtracted from net sales in order to determine gross profit.

True or false: A single-step income statement shows only one subtotal for expenses.

False Reason: A single-step income statement shows only one subtotal for expenses.

Which of the following are the three main parts of a multiple-step income statement? (Check all that apply.)

Gross profit Net income Income from operations

Describe good cash management practices involving inventory purchases. (Check all that apply.)

Invoices should be paid on the last day of the discount period. Buyers should take advantage of early payment discounts.

A single-step income statement can be identified by which of the following formats?

It shows only one total for all expenses. Reason: The multi-step income statement format shows costs of goods sold as a subtraction from net sales. The single-step income statement shows cost of goods as one of the expenses and is subtracted from total revenues.

Identify the accounts below that would be classified as a long-term investment. (Check all that apply.)

Land held for future expansion. Investments in bond Notes receivable due in 2 years.

Identify which of the accounts below would be classified as a plant asset account. (Check all that apply.)

Machinery Land currently being used Equipment Building

Which statement below correctly explains what merchandise inventory is?

Merchandise inventory is an asset reported on the balance sheet and contains the cost of products purchased for sale.

Review the statements below and select the items that are correct regarding the operating cycle for a business. (Check all that apply.)

Most operating cycle are less than one year. The length of a company's operating cycle depends on its activities. Most companies use a one-year period or operating cycle in decide which assets and liabilities are current. The operating cycle is the time span from when cash is used to acquire goods and services until cash is received from the sale of goods or services.

How do you compute net income for a merchandiser.

Net sales - cost of goods sold - other expenses.

Identify the two types of inventory systems from the choices below.

Perpetual inventory system and periodic inventory system.

Define plant assets by selecting the correct statements below. (Check all that apply.)

Plant assets are property, plant and equipment that are tangible. Plant assets are equipment and other assets that have a life greater than one year.

Which of the following statement correctly define(s) profit margin? (Check all that apply.)

Profit margin is a useful measure of a business's operating results. Profit margin is the ratio of a business's net income to its net sales Profit margin is also called return on sales.

Which of the following statements correctly define(s) a profit margin? (Check all that apply.)

Profit margin is the amount of revenue received on a sale. Profit margin is also called return on sales. Profit margin is the ration of a business's net income to its net sales.

Demonstrate how to prepare a multiple-step income statement by ranking the items below in the order they would appear on a multiple-step income statement of a merchandiser.

Sales Cost of goods sold Gross Profit Operating expenses Income from operations Other revenues and expenses

Which of the statements below explain why perpetual inventory systems are becoming more popular? (Check all that apply.)

Technological advances have made it easier to use. Managers have immediate access to detailed information on sales and inventory levels.

The buyer and seller of merchandise must agree on who is responsible for paying freight terms. Show your understanding of freight terms by selecting all of the correct statements below. (Check all that apply.)

Terms FOB shipping point means the buyer accepts ownership when the goods depart the seller's place of business. When the shipping costs are responsibility of the buyer, then the Merchandise Inventory account is debited for the freight charges. Terms FOB destination means that the seller is responsible for shipping costs. Revenue for the sale will be recorded after the goods reach their destination, if the goods are shipped FOB destination.

Which of the statements below explains the accounting cycle?

The accounting cycle is repeated each reporting period and refers to the steps taken in preparing financial statements.

Credit terms of 1/10, net 30 means.

The buyer will receive a 1% discount if they pay within 10 days of the date of the invoice.

Using the financial information of ABC Co. below, evaluate the company's current ratio. Select all answers which apply. $ in millions 2019 Current assets $620 Current liabilities $430 Current ration 1.44 Industry current ratio. 1.28

The company's ratio is above the industry ratio, so this company is able to cover its debt better than other in this industry. The company's ability to pay short-term obligations is not in doubt since its current ratio is greater than 1.0

Which of the statements below is 9are) correct regarding accounting cycle? (Check all that apply.)

The cycle contains steps for adjusting and closing accounts. The accounting cycle refers to steps followed by a company to prepare its financial statements. The accounting cycle is a series of steps repeated each reporting period. The accounting cycle contain 10 steps.

Determine which of the definitions below describes gross profit.

The difference between net sales and the cost of the goods sold.

Review the following statements and select the one that best describes a discount period.

The discount period is the time period on which a discount may be taken by a buyer.

Explain what the credit terms of 2/10,n/30 mean. (Check all that apply.)

The full payment is due within a 30-day credit period. The buyer can deduct 2% of the invoice amount if payment is made within 10 days of the invoice date.

Which statement(s) below is(are) correct regarding the purpose of taking a physical inventory count? (Check all that apply.)

The physical count is used to adjust the inventory account balance to the actual inventory available. The physical count is used to determine if there has been any theft, loss, damage or errors in inventory/

What is an intangible asset?

The value of intangible assets comes from the privileges or rights granted to or held by the owner. Intangible assets are long-term resources that benefit business operations, but lack physical form.

All of the following are on an unclassified balance sheet. (Check all that apply.)

Total liabilities Total assets

Which of the following lists steps of the accounting in the correct order (note that not all steps are listed)?

Trial balance, Adjusting journal entries, Post-closing trial balance.

A purchase allowance can be described as:

a reduction in the cost of defective or unacceptable merchandise that a buyer acquires

Identify the normal balance (debit or credit) for each of the following accounts. a. Fuel Expense b. Furniture c. Rent Revenue d. Postage Expense e. Office Equipment f. Office Supplies g. Accounts Receivable h. Salaries Expense i. Salaries Payable

a. Debit b. Debit c. Credit d. Debit e. Debit f. Debit g. Debit h. Debit i. Credit

Merchandise inventory can be described as: (Check all that apply.)

an asset account. products that a company owns and intends to sell. an account increased with a debit. an account appearing on a balance sheet of a merchandiser.

Complete the following statement. Merchandise inventory that is still available for sale is considered a(n) _____ (asset/expense/revenue) and is reported on the _____ (balance sheet/income statement) and merchandise that is sold during the period is considered a(n) ______ (asset/expense/liability) and reported on the ____ (balance sheet/income statement).

asset -> balance sheet -> expense -> income statement

The Merchandise Inventory account on a classified balance sheet is reported in the :

current assets section

Jello's Market purchased $1,000 of goods on account with terms of 2/10,n/30. They returned $200 of the goods due to defect the next day. If Jello pays for the purchase within the discount period and uses the perpetual inventory system, the required journal entry to record the payment would:

debit Account Payable $800; credit Merchandise Inventory $16; and credit Cash $784 Reason: Discount is $800 x 2%= 16. 200 was returned, so the discount is based on $800.

Assume that Bee Bees Fish Store uses a periodic LIFO inventory system. Its ending inventory consists of 13 fish. Calculate the dollar value of its ending inventory.

$165 Reason: You figured the cost of goods sold; not what remained in ending inventory. To compute LIFO for ending inventory, you use the earliest costs because you have sold the latest costs. (10 @ 12) + (3@$15) = $165.

Chocolate Inc. uses a perpetual inventory system and uses the FIFO cost flow assumption. Calculate the cost of goods sold for the sale made on Mar. 20. Date Activity Mar 1 Beginning Inventory 3 @ $12 = $36 Mar 15 Purchase 17 @$15 = $255 Mar 20 Sale 12 @ $50 each

$171 Reason: Sold a total of 12 units: (3@12) + (9@15) = $17

Assume that Q-Mart uses a periodic LIFO inventory system. During the period, it sold 14 units. Calculate the dollar value of its cost of goods sold for the period. Date Activity Jan. 1 Beginning Inventory 10 @ $12 Jan. 5 Purchase 10 @ $15 Jan. 30 Purchase 10 @ $18 Feb. 8 Sale 14 units

$180 Reason: You figured LIFO. FIFO should be: (10@$12)+(4@$15)=$180

Assume that Q-Mart uses a periodic FIFO inventory system. During the period, it sold 14 units. Calculate the dollar value of its cost of goods sold for the period. Date. Activity Jan. 1 Beginning Inventory 10 @ $12 Jan. 5 Purchase 10 @ $15 Jan. 30 Purchase 10 @ $18 Feb. 8 Sale 14 units

$180 Reason: You figured an average cost of each unit sold, FIFO should be (10@$12) + (4@15) = $180.

Storm Windows Company understated their ending inventory during their first year of operations by $2,000. What is the effect of this error at the end of the year? Select all answers which apply.

$2,000 understatement of net income. $2,000 overstatement of cost of goods sold.

Given the following information, determine the cost of goods sold for the period. Jan 1 Beginning Inventory $950 Jan 1-30 Purchases $1800 Jan 31 Ending Inventory $250

$2,500 Reason: Beg + Purchases = $2,750; $2,750 - $250 ending = $2,500

Assume that J-Mart uses a perpetual weighted average inventory system. During the period, it had two sales. Calculate the average cost per unit. Date. Activity Jun. 1 Beginning Inventory 15 @ $12 = $180 Jun. 5 Purchase 5 @ $15 = $75 Jun. 28 Purchase 10 @ $18 = $180 Jun. 8 Sale 6 units

$14.50 Reason: ($180 + 75 + $180)/ 30 units = $14.50. Under the periodic system the average cost is computed at the end of the period based on all purchases plus beginning inventory.

ABC Co. uses a perpetual inventory system and uses the weighted average cost flow assumption. During the month, it had two sales. Calculate the dollar value of its cost of goods sold for the first sale made on Jan. 10. Date Inventory Jan 1 Beginning Inventory 8 @ $12 = $96 Jan 5 Purchase 12 @ $15 = $180 Jan 10 Sale 11 @ $50 each Jan 25 Purchase 10 @ $18 = $180 Jan 30 Sale 3 @ $55 each

$151.80 Reason: You too the average of all purchases. ($96 + $180) / 20 units = 13.80 avg. $13.80 x 11 units = $151.80

Determine cost of goods sold for X-mart, assuming that beginning inventory was $5,000. Net purchases were $20,000 and ending inventory was $9,000.

$16,000 Reason: (5,000 + 20,000) - $9,000 = $16,000

Assume that Sparks uses a periodic FIFO inventory system. Its ending inventory consists of 9 units. Calculate the dollar value of its ending inventory. Date. Activity Jan. 1 Beginning Inventory 10 @ $12 Jan. 5 Purchase 10 @ $15 Jan. 30 Purchase 10 @ $18 Feb. 8 Sale 21 units

$162 Reason: You figured the average cost. FIFO is ( 9 @ $18) = $162.

Assume that Bee Bees Fish Store uses a periodic LIFO inventory system. Its ending inventory consists of 13 fish. Calculate the dollar value of its ending inventory. Date. Activity Jan. 1 Beginning Inventory 10 @ $12 Jan. 5 Purchase 10 @ $15 Jan. 30 Purchase 10 @ $18 Jan. 8. Sale 17 fish

$165 Reason: To compute LIFO for ending inventory, you use the earliest costs because you have sold the latest costs. (10 @ $12) + (3 @$15) = $165/

Assume that Widgets, Inc. uses a periodic specific identification inventory system. During the period, it sold 4 units from beginning inventory, 8 units from the Jan. 5 purchase, and 2 units from the Jan. 29 purchase. Calculate the dollar value of its cost of goods sold for the period based on the information provided below. Date. Activity Jan. 1 Beginning Inventory 10 @ $12 Jan 5 Purchase 10 @ $15 Jan. 29 Purchase 10 @ $18 Jan. 30 Sale 14 units

$204 Reason: You figured what was left in inventory. What is sold = (4@$12) +(8@15) +(2@18) = $204

Assume that Q-Mart uses a periodic LIFO inventory system. During the period, it sold 14 units. Calculate the dollar value of its cost of goods sold for the period. Date Activity Jan. 1 Beginning Inventory 10 @ $12 Jan. 5 Purchase 10 @ $15 Jan. 30 Purchase 10 @ $18 Feb. 8 Sale 14 units

$240 Reason: LIFO should be: (10@18)+(4@$15)=$240

Assume that Toy-Cars Inc. uses a periodic specific identification inventory system. Its ending inventory consists of 2 cars from beginning inventory, 4 cars from the Jan. 5 purchase, and 10 cars from the Jan. 30 purchase. Calculate the dollar value of its ending inventory, based on the information provided below. Date Activity Jan 1 Beginning Inventory 10 cars @ 12 Jan 5 Purchase 10 cars @ $15 Jan 30 Purchase 10 cars @ $18

$264 Reason: Ending inventory =(2@$12)+(4@$15)+(10@$18) = $264

Recall the formula for figuring Days' Sales in Inventory.

(Ending inventory/Cost of good sold) x365

For each separate case below, follow the three-step process for adjusting the Accumulated Depreciation account at December 31. Step 1: Determine what the current account balance equals. Step 2: Determine what the current account should equal. Step 3: Record the December 31 adjusting entry to get from step 1 to step 2. Assume no other adjusting entries are made during the year.

a. Accumulated Depreciation: The Krug Company's Accumulated Depreciation account has a $16,00 balance to start the year. A review of depreciation schedules reveals that $17,600 of depreciation expense must be recorded for the year. Step 1: Determine what the current account balance equals. $16,000 Credit Accumulated Depreciation 16,000 Step 2: Determine what the current account balance should equal 16,000 + 17,600 = $33,600 Credit Step 3: Record the December 31st adjusting entry to get from step 1 to step 2 Adjusting Entry Depreciation expense $17,600 Debit Accumulated depreciation $17,600 Credit b. Accumulated Depreciation: The company has only one plant asset (truck) that it purchased at the start of this year. That asset had cost $49,000, had an estimated life of five years, and is expected to have zero value at the end of five years. The company uses straight-line depreciation method to calculate its depreciation. Step 1: Determine what the current account balance equals. $0 Accumulated depreciation--Truck $0 Step 2: Determine what the current account balance should equal. $9800 Credit Accumulated depreciation--Truck $9,800 Step 3: Record the December 31 adjusting entry to get from step 1 to step 2. Adjusting Entry Depreciation expense--Truck Debit $9800 Accumulated depreciation--Truck Credit $9800 c. Accumulated Depreciation. The company has only plant asset (equipment) that it purchased at the start of this year. The asset had cost $42,000, had an estimated life of seven years, and is expected to be valued at $7,000 at the end of the seven years. The company uses straight-line depreciation method to calculate its depreciation. Step 1. Determine what the current account balance equals. $0 Acculmilated depreciation--Equipment 0 Step 2. Determine what the current account balance should equal. $5,000 Credit Accumulated depreciation--Equipment 5,000 Step 3. Record the December 31 adjusting entry to get from step 1 to step 2. Adjusting Entry Depreciation expense--Equipment Debit 5,000 Accumulated depreciation--Equipment Credit 5,000

Chapter 11 - Corporate Reporting and Analysis Prepare the journal entry to record Zende Company's issuance of 77,000 shares of $6 par value common stock assuming the shares sell for: a. $6 cash per share. b. $7 cash per share.

a. Cash 462,000 Debit Common stock, $6 par value $462,000 Credit b. Cash 539,000 Debit Paid-in capital in excess of par value, common stock 77,000 Credit Common stock, $6 par value 462,000

Chapter 4 Accounting for Merchandise Operations Accumulated depreciation $700 Beginning inventory 8,000 Ending inventory 3,600 Expenses 1,750 Net purchases 8,700 Net sales 15,500 Krug Service Company Expenses $9,100 Revenues 20,000 Cash 800 Prepaid rent 840 Accounts Payable 200 Equipment 1,900

a. Compute the goods available for sale, the cost of goods sold and gross profit for the merchandiser. Hint: Not all information may be necessary. b. Compute net income for each company. a. Goods available for sale (Beginning Inventory + Net purchases) $8,000 + $8,700 = $16,700 a. Cost of goods sold (Goods available for sale - Ending inventory) $16,700 - $3,600 = $13,100 a. Gross profit (Net sales - Cost of goods sold) $15,500 - 13,100 = $2,400 b. Net income for Krug Service Company (Revenues - Expenses) $20,000 - $9,100 = $10,900 b. Net Income for McNeil Merchandising Company $650

Chapter 4 Accounting for Merchandise Operations Identify whether each description best applies to a periodic or a perpetual inventory system. a. Provides managers with information on inventory levels at the end of each period only. b. Gives managers immediate access to detailed information on inventory c. Provides more timely information to managers d. The merchandise inventory account balance remains unchanged during the period e. Does not require the use of a "purchases" account.

a. Periodic inventory system b. Perpetual inventory system c. Perpetual inventory system d. Periodic inventory system e. Perpetual inventory system

Record adjusting journal entries for each separate case below for year ended December 31. Assume no other adjusting entries are made during the year. a. Unearned Rent Revenue. The Krug Company collected $8,400 rent in advance on November 1, debiting Cash and crediting Unearned Rent Revenue. The tenant was paying 12 months ' rent in advance and occupancy began on November 1. b. Unearned Services Revenue. The company charges $95 per insect treatment. A customer paid $380 on October 1 in advance for four treatments, which was recorded with a debit to Cash and a credit to Unearned Services Revenue. At year-end, the company has applied three treatments for the customer. c. Unearned Rent Revenue. On September 1, a client paid the company $28,800 cash for six months of rent in advance and took occupancy immediately. The company recorded the cash as Unearned Rent Revenue

a. Rent revenue [(8,400/ 12 months) x 2 months] = $1,400 Debit Cash 1400 Credit Unearned Rent Revenue b. Service revenue ($95 x 3 treatments) = $285 Debit Cash $285 Credit Unearned Service Revenue $285 c. Rent revenue [($28,800 / 6 months) x 4 months] = $19,200 Unearned Rent Revenue Debit $19,200 Rent Revenue? $19,200

Sales Discounts _____ account

contra-revenue

Given the partial list of accounts below, the entry to close the temporary credit balance accounts would include a: - Sales $20,000 Credit - Sales Discounts $500 Debit - Cost of Goods Sold $1,900 Debit - Merchandise Inventory $5,000 Debit - Accounts Payable $500 Credit - Retained earnings $10,000 Credit

credit to Income Summary, $20,000

An advantage of the LIFO method is that it best matches

current costs with revenues

Jo's Market makes a credit sale for $1,000 with terms of 2/10,n/30. The cost of the merchandise is $400. The required journal entry to record the sale and cost of the sale is:

debit Accounts Receivable $1,000; credit Sakes $1,000; debit Cost of Goods Sold $400; and credit Merchandise Inventory $400

Jan's Jams makes a credit sale for $300 with terms of 2/10,n/30. The cost of the merchandise is $200. The required journal entry to record the sale and the cost of the sale is:

debit Accounts Receivable $300; credit Sales $300; debit Cost of Goods Sold $200; and credit Merchandise Inventory $200

Under the periodic inventory system, a sale on account will result in the following journal entry:

debit Accounts Receivable and credit to Sales Reason: Under the periodic inventory system, a sale on account will result in a debit to Accounts Receivable and a credit to Sales. The second journal entry to debit Cost of Goods Sold and credit Merchandise Inventory is used under the perpetual inventory system only.

On June 5, Jo's Market sold $1000 of goods on credit with terms 2/10,n/30. The required journal entry to record Jo's Market customer's payment on July 6 would be:

debit Cash $1,000; credit Accounts Receivable $1,000

Given the partial list of accounts below, the entry to close the temporary debit balance accounts would include a: -Sales $20,000 Credit -Sales Returns and Allowances $1000 Debit -Sales Discount $500 Debiy -Cost of Goods Sold $1900 Debit -Wages Expense $300 Debit -Merchandise Inventory $5000 Debit -Supplies $700 Debit

debit to Income Summary, $3,700 Reason: Close Sales Discounts, Sales Returns and Allowances, Cost of Goods Sold and Wages Expense. $1,000 + 500 + 1,900 + 300 = $3,700

An inventory error not only affects the current year's cost of goods sold, gross profit, net income, current assets and equity, but also the next period's statements because

end inventory of one period is the beginning inventory of the next period

Given the following information, analyze XYZ Company's gross margin ratio. (Check all that apply.) Year 2014 Gross margin $3,200 Net Sales $10,400 Gross margin ratio 30.7% Year 2013 Gross margin $3,210 Net Sales $11,200 Gross margin ratio 28.7%

in 2014, they have approximately 30.7 cents of every dollar of sales to help cover the other expenses of running the business Their gross margin has decreased since last year. Their gross margin ratio has improved since 2013. Reason: Their gross margin has decreased, but their gross margin ration has increased.

All of the following are inventory costing methods used under a periodic inventory system except:

last in, last out

The LIFO cost flow assumption assumes that the cost of items purchased _____ are the costs that will be transferred first to the cost of goods sold on _____ _____.

latest/income statement Reason: The last-in, first-out cost flow assumption assumes that the most recently purchased costs are transferred to cost of goods first.

The formula to compute cost of goods sold is

merchandise available for sale minus ending inventory.

A multiple-step income statement will have all of the following parts except:

net income Reason: A multiple-step income statement will have all the following main parts except net sales. The multiple-step income statement will have a gross profit, income from operations, and net income.

Damaged good which can be sold are reported in inventory at:

net realizable value

A person who has access to an asset must _____ access to that asset's accounting records.

not have

Responsibility for a task should be clearly established and assigned to:

one person

Which of the following are correct regarding why management uses internal controls? (Check all that apply.)

promote efficient operations uphold company policies protect assets ensure reliable accounting

Under a periodic inventory system, purchases are

recorded in a separate temporary account which is closed at period end.

Bonding employees who handle cash is important because it:

reduces risk of theft

An advantage of the weighted average method under a periodic inventory system is that it:

smooths out erratic changes in costs.

Under a periodic inventory system when a sale is made:

the cost of goods are recorded after each sale Reason: Under a periodic inventory system the revenue but not the cost of goods sold is recorded.

Under a periodic inventory system, when a sale is made

the costs of goods are recorded after each sale. Reason: Under a periodic inventory system the revenue but not the cost of goods sold is recorded.

What is the purpose of internal controls?

to protect assets and ensure reliable accounting