ACC Chpt. 6

Blog Inc., has net sales of $50,000, cost of goods sold of $30,000, and selling expenses of $5,000. Its gross profit is ______.

$20,000 Rationale: Gross profit = sales-cost of goods sold.

Bern Company has 100 units costing $200 in beginning inventory. During the year, the company purchases 900 additional units for $1,980. At the end of the year, 200 units remain unsold. If Bern Company utilizes the LIFO method, cost of goods sold will be

$1,760 Rationale: ($1,980/900 x 800) = $1,760

Adam Company has 100 units costing $300 in beginning inventory. During the year, the company purchases 900 units for a total cost of $2,880. At the end of the year, a physical count reveals that 200 units remain in ending inventory. If the company uses the FIFO method, cost of goods sold will be

$2,540. Rationale: 800 units have been sold. 100 units from beginning inventory at $300 plus 700 units from the units purchased at $2,240 ($2,880/900 x 700) equals $2,540

Blog Inc., has net sales of $50,000, cost of goods sold of $30,000, and selling expenses of $5,000. Its gross profit is ______

$25,000 Rationale: Gross profit = sales-cost of goods sold.

Palmer Company's beginning inventory consists of 1,000 units at $1.00 per unit. During the year, the company purchases 5,000 units costing a total of $5,800. At the end of the accounting period, Palmer still has 1,000 units on hand. If Palmer uses the weighted average cost method, its cost of goods sold (rounded to the nearest dollar) will be

$5,667. Rationale: 5,000 x [(1,000 + 5,800)/6,000]

Which of the following items are reported in operating income?

Advertising expenses Revenues Selling expenses

Which inventory system recognizes cost of goods sold and decreases inventory each time a sale occurs?

Perpetual inventory system

Using the perpetual inventory system, what is the effect of a sale of inventory on assets?

assets decrease by the cost of the inventory assets increase by the sales price of the inventory

If a company uses a perpetual inventory system, the entry to record the company's return of goods previously purchased on account includes ______ and _____.

debit to Accounts Payable credit to Inventory. Rationale: When the goods were purchased, Inventory was increased with a debit and Accounts Payable was increased with a credit. When goods are returned, Accounts Payable is reduced with a debit and Inventory is decreased with a credit.

In times of rising prices, cost of goods sold determined using the LIFO inventory assumption typically will be than cost of goods sold determined using the FIFO inventory assumption.

higher

Combining operating income with non-operating revenues and expenses yields

income before income taxes

A multiple-step income statement reports multiple levels of ________

income, earnings, profit, or profitability

In times of rising prices, ending inventory determined using the LIFO inventory assumption will be than ending inventory determined using the FIFO inventory assumption.

lower

The ______ method of valuing inventory was developed to avoid reporting inventory at an amount that is ______ than the benefits it can provide.

lower of cost and net realizable value; greater

The type of income statement that reports a series of subtotals such as gross profit, operating income, and income before taxes is a ______ income statement.

multiple-step

Income before income taxes is calculated by combining operating income with

non-operating income

On a multiple step income statement, the category of revenues and expenses reported immediately after operating income is referred to as _______ revenues and expenses.

non-operating

Revenues and expenses arising from activities that are not part of the company's operations are classified as ______ revenues and expenses.

nonoperating

Weighted-average unit cost is determined by dividing cost of goods available for sale by

total quantity available for sale.

Clover Corporation uses the perpetual inventory system. When Clover purchases inventory on account, the entry will include which of the following?

Debit Inventory

The cost of goods not yet sold is recorded in the ______ account, whereas the cost of goods that are sold to customers is recorded in _____.

Inventory; Cost of Goods Sold

True or false: When goods are sold, the cost of the goods is transferred from the Inventory account to the Cost of Goods Sold account.

TRUE Rationale: Inventory represents goods not yet sold, and cost of goods sold represents an expense for the cost of the goods sold.

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

correct

What is the effect of recording a sale of inventory under the perpetual inventory system on the financial statements?

stockholders' equity increases net income increases total assets increase

Prather Inc. has sales of $100,000, sales returns of $5,000, cost of goods sold of $60,000, and selling expenses of $3,000. Calculate gross profit.

$35,000 Rationale: Net sales is $95,000 ($100,000 - 5,000). Net sales of $95,000 less cost of goods sold of $60,000 = $35,000.

Bern Company has 100 units costing $200 in beginning inventory. During the year, the company purchases 900 additional units for $1,980. At the end of the year, 200 units remain unsold. If Bern Company utilizes the LIFO method, ending inventory will be

$420. Rationale: ($1,980/900 x 100) +$200 = $420

Adam Company has 100 units costing $300 in beginning inventory. During the year, the company purchases 900 units for a total cost of $2,880. At the end of the year, a physical count reveals that 200 units remain in ending inventory. If the company uses the FIFO method, the cost of ending inventory will be

$640.Rationale:$2,880/900 x 200 = $640

Which of the following items are included in calculating operating income?

-General and administrative expenses -Utility expense -Cost of goods sold

Clark uses the perpetual inventory system. Clark sells goods to a customer on account for $1,000. The cost of the goods sold was $700. Which of the following entries are required?

Debit Accounts Receivable $1,000; credit Sales Revenue $1,000 Debit Cost of Goods Sold $700; credit Inventory $700

Josh Corporation uses the perpetual inventory system. Josh sells goods to a customer on account for $2,000. The cost of goods sold is $1,500. What is the entry required to record the expense of the inventory sold?

Debit Cost of Goods Sold $1,500; credit Inventory $1,500

A periodic inventory system measures cost of goods sold by

counting inventory at the end of the period.

A multiple-step income statement reports multiple levels of

income

Margot Inc, which uses the perpetual inventory system, purchases 500 units of inventory to be held for resale. Margot should debit the purchase to:

inventory