ACCT Ch 6 Smart Book

Boron Company has Net Sales of $60,000; Beginning Inventory of $7,000; Purchases of $35,000 and Ending Inventory of $5,000. The Cost of Goods Sold is ______.

$37,000 Reason: Cost of Goods Sold = $7,000 Beginning Inventory + 35,000 Purchases - 5,000 Ending Inventory

XYZ Company sold merchandise for $5,000, with payment terms of 2/10,n/30. If the customer pays within the discount period and takes the discount, XYZ will receive ______.

$4,900 Reason: The customer can take a 2% discount and pay $4,900 (=$5,000 - (2% x $5,000)).

Every merchandise sale has 2 components which require an entry in a perpetual inventory system. Select these two components given the sale was made on account to a customer.

Debit Accounts Receivable and credit Sales Revenue in the amount of the selling price times the quantity sold Debit Cost of Goods Sold and credit Inventory in the amount of the cost times the quantity sold

Walmart sells a bike that cost $100 to a customer for $250 cash. Using a perpetual inventory system, the entry to record the sale includes a debit to _______ and credit to ________________ for $250. The entry to record the cost of the sale includes a debit to Cost of Goods Sold and a credit to ______ for $100

Cash Sales Revenue Inventory

Which of the following are found on the income statement of a merchandiser?

Cost of Goods Sold Sales Revenue Gross Profit

In a perpetual system, the _________ account is debited when a company purchases merchandise on account.

Inventory

Beginning Inventory + Purchases = _____.

Goods Available for Sale

Which line items are found on a multi-step but not on a single-step income statement.

Income from Operations Gross Profit

Match the financial statement line item with the appropriate description.

Inventory: Current asset on the balance sheet available for sale Sales Revenue: Selling price times the quantity sold Cost of Goods Sold: Cost times the quantity sold Gross Profit: A subtotal on the income statement and is the amount earned from adding value to the inventory sold

Surfshack Corp. buys surfboards, wetsuits, and surf wax from Rip to Shreds, Inc. for sale to consumers. What type of company is Surfshack Corp?

Retail merchandiser

In which of these situations would a merchandiser record revenue?

The obligation has been fulfilled and control of the goods has been transferred to the customer . Goods were sent FOB Shipping Point but have not yet arrived at the buyer's place of business.

Using a perpetual inventory system, the effect on the accounting equation of purchasing merchandise on account includes a(n) ______.

increase in liabilities increase in assets

Bijoux Company has sales of $40,000, beginning inventory of $5,000, purchases of $25,000, and ending inventory of $7,000. The goods available for sale for the period equals ______.

$30,000 Reason: Goods available for sale equals $30,000 (= beginning inventory of $5,000 plus purchases of $25,000).

The income statement for ABC Company shows Gross profit of $144,000; Operating expenses of $130,000; and Cost of goods sold of $216,000. What is net sales revenue?

$360,000 Reason: Net sales revenue - Cost of goods sold = Gross profit. To solve for sales, rearrange the equation as Gross profit + Cost of goods sold = Net sales revenue (= $144,000 + 216,000 = $360,000).

On October 25, Yacht Doc received $210,000 for a yacht valued at $190,000 and a service contract to be performed evenly from November through February. During November, the yacht was delivered and 1 month of the service contract was performed. The remaining services are to be performed evenly over the next 3 months. In what month should the service contract be recognized as revenue?

$5,000 in each month from November to February Reason: The service contract is performed over a 4- month period and thus 1/4 of the $20,000 will be recognized in each month.

In which company would you rather invest? A company with low gross profit percentage and low sales volume A company with high gross profit percentage and high sales volume A company with low gross profit percentage and high cost of goods sold

A company with high gross profit percentage and high sales volume

What does the gross profit percentage tell you?

A higher ratio means that more is available to cover operating expenses.

If Accounts Payable is debited and Cash is credited, then the company is recording a ______.

payment of amounts owed for purchases made on account

The ____ inventory system requires that the inventory account be updated only at the end of the accounting period.

periodic

A multistep income statement is useful to financial statement users because it ______.

separates cost of goods sold from other operating expenses, which allows the calculation of gross profit separates income statement items into meaningful components

If a seller sells its merchandise with the shipping terms FOB shipping point, it credits Revenue when the merchandise is _______.

shipped from the seller's place of business

Beginning inventory was $5,000. During the month, the company purchased an additional $25,000 of inventory and sold goods that cost $20,000. Ending inventory was ______.

$10,000 Reason: Beginning inventory + purchases - ending inventory = cost of goods sold. Ending inventory equals $10,000 (=$5,000 + 25,000 - 20,000).

In a periodic system, for Cost of Goods Sold to be updated, which of the following must occur?

Compute Cost of Goods Sold sold by subtracting Ending Inventory from Goods Available for Sale. Take a physical count of inventory.

In a perpetual inventory system, the entry to record the sale includes a debit to _______________ and a credit to ________

Cost of Goods Sold Inventory

On October 25, Yacht Doc received $200,000 for a yacht valued at $180,000 and a 4-month service contract. During November, the yacht was delivered and 1 month of the service contract was performed. The remaining services are to be performed evenly over the next 3 months. What is the entry Yacht Doc should record on October 25?

Debit Cash; Credit Deferred Revenue

Which of the following costs should be added to the buyer's Inventory account?

Freight-in with terms FOB shipping point

In which of the following ways does a periodic system differ from a perpetual system?

Inventory is not updated until the end of the accounting period in a periodic system. Cost of Goods Sold is not updated until the end of the accounting period in a periodic system.

________ companies sell goods that they have produced.

Manufacturing

_________ Sales on an income statement equals Sales Revenue, gross minus Sales Returns and Allowances minus Sales __________

Net Discounts

Gross profit percentage is calculated as ______.

Net sales minus Cost of Goods Sold, then divide by Net sales, and multiply by 100

Which inventory system requires that the Inventory account be updated when merchandise is purchased?

Perpetual system

Which of the following items are netted against Sales Revenue to arrive at Net Sales (Sales Revenue, net)?

Sales Allowances Sales Discounts Sales Returns Reason: Net Sales equals Sales Revenue less Sales Returns & Allowance less Sales Discounts.

What are the two stages of accounting for a purchase discount using the gross method?

The Inventory account is later reduced if payment is made within the discount period. The purchase is first recorded at full cost. Reason: The purchase is recorded with a debit to Inventory (+A) and a credit to Accounts Payable (+L) at the full cost. When payment is made at the discounted amount, the Accounts Payable (-L) account is debited by the full cost and Cash (-A) is credited by the net cost paid and Inventory (-A) is credited by the discount amount to balance the entry.

True or false: When a company sells different types of products, the income statement will report the Cost of Goods Sold for all of the products in one line item.

True

In a perpetual system, the entry to record the sale of merchandise to a customer on account would include a ______.

debit to Cost of Goods Sold credit to Inventory

Sales discounts should appear in the financial statements as a(n) ______.

deduction from sales

Accounts Payable ______.

is credited for purchases made on account is debited when amounts owed are paid

A _______ inventory system records the Cost of Goods Sold with a debit to Cost of Goods Sold and a credit to Inventory at the time of the sale.

perpetual

Cost of goods sold equals beginning inventory plus _______ minus ending inventory.

purchases

Sales Revenue reports the ______.

sales price times the quantity of goods sold

In a perpetual inventory system, the buyer of merchandise with the shipping terms FOB shipping point will ______.

add the transportation costs to its Inventory account

Inventory consists of all ______.

costs needed to get the inventory ready for sale

Sales Returns and Allowances are reported on the ______.

income statement

Which of the following should be debited to Inventory?

purchases of merchandise on account freight-in if shipped FOB shipping point

Breyer Company bought inventory FOB shipping point from Cellar Company for $4,000 cash, including shipping charges. On December 31, the last day of the accounting year, the goods were on a truck owned by Common Carrier Company, and not expected to arrive until January 3. Which company should include these goods in its December 31 inventory?

Breyer Company should include the $4,000 in its inventory. reason: FOB Shipping point= "delivered" when seller loads the truck

When using the gross method, the journal entry to record taking a discount when paying for goods previously purchased on account includes a ______.

debit to Accounts Payable for the original cost credit to Inventory for the discount amount credit to Cash for the amount paid

FOB ______ is the term used when ownership of the goods transfers to a buyer when the goods arrive at the buyer's place of business.

destination

Merchandisers record revenue when they ______.

fulfill their performance obligations by transferring control of the goods to customers

If sales returns and allowances are a large dollar amount relative to initial sales revenue, it may mean ______.

there are product quality issues

FOB destination means that goods are owned by the buyer as soon as ______.

they arrive at the buyer's place of business

Which step must happen first when determining Cost of Goods Sold using a periodic inventory system?

Count the number of units on hand. THEN Compute and record Cost of Goods Sold.

Ace Electronics had Cost of Goods Sold of $20,000. If purchases of inventory were $23,000 and Ending Inventory was $6,000, Ace's Beginning Inventory must have been ______.

$3,000 Reason: X Beginning Inventory + $23,000 Purchases - $20,000 Cost of Goods Sold = $6,000 Ending Inventory. Beginning Inventory = $6,000 Ending Inventory - $23,000 Purchases + $20,000 Cost of Goods Sold = $3,000.