Orion 05
A business reports net income of $50,000. If the company's net sales were $750,000 and cost of goods sold was $450,000, the gross profit rate would be 40%.
True
Under a perpetual inventory system, a credit to inventory is recorded when
a company sells merchandise.
Which of the following provide evidence of cash sales? Select all that apply.
-cash register tapes -canceled checks
What information to management is provided by the Sales Returns and Allowances account? Select all that apply.
-methods in shipping that need improvement -merchandise that may be inferior -the percentage of goods that are damaged in shipment
Which of the following are NOT a primary source of revenue for a wholesaler? Select all that apply.
-service revenue -the sale of plant assets the company owns -investment income
If a company's net cash provided by operating activities is $2,250,000 and its net income is $1,465,000 then its quality of earnings ratio is
1.5 *($2,250,000/$1,465,000=1.5)
The journal entry to record a credit sale is
Accounts Receivable Sales Revenue
Under a perpetual inventory system what account would be credited if merchandise that had been purchased on credit was returned?
Inventory
Why is the multiple-step income statement considered more useful than the single-step income statement?
It highlights the components of net income
If a buyer takes advantage of a cash discount, how will it affect the buyer's Inventory account?
It will decrease by the amount of the cash discount.
If a company is using more aggressive accounting techniques in order to accelerate income recognition, which of the following is most likely true?
Its quality of earnings ratio is significantly less than 1.
________ might be chosen by a company because it highlights the components of net income.
The multiple-step income statement
A customer receives merchandise that did not meet its specifications. The customer returns the merchandise to the seller. How will the seller record this transaction?
as a debit to Sales Returns and Allowances
A company receives a return of merchandise purchased on account. How would this be recorded in a perpetual inventory system in the books of purchasing company?
credit to Inventory
A company using a perpetual inventory system buys goods and pays the freight costs. Because it pays the freight costs, it must
increase the Inventory account
Freight paid on goods shipped to customers _____ considered in computing net cost of purchases.
is not
For a buyer, under a perpetual inventory system the inventory is credited when
merchandise that had been purchased on credit is returned
According to the revenue recognition principle, when goods are transferred from the seller to the buyer, the seller
records the sales revenue
vidence of credit sales is provided by
sales invoices
Charlie Company's accounting records show the following for the year ending on December 31, 2014. Purchase Discounts $ 6,600 Freight-In 7,000 Purchases 450,010 Beginning Inventory 23,500 Ending Inventory 28,800 Purchase Returns and Allowances 10,400 Using the periodic system, the cost of goods purchased is
$440,010 *($450,010 - $6,600 - $10,400 + $7,000 = $440,010)
Edward's Paints purchased $1,000 worth of merchandise on account from a wholesaler. The wholesaler offered credit terms of 2/10, n/30. After the discount period, Edward's Paint returned $200 of damaged merchandise, and settled the account with a check. How much was the check for?
$800 *[($1,000 - $200) = $800 ]
The Sales Returns and Allowances account is classified as a Contra Revenue account.
True
Under a perpetual inventory system, what would a company do when it returns goods it had purchased on credit?
debit Accounts Payable and credit Inventory
If a seller grants a purchaser a sales discount, how will the seller record the transaction?
debit to Sales Discounts account for the amount of the discount taken
What is the transaction called when a customer agrees to retain defective merchandise because the seller is willing to reduce the selling price?
sales allowance