ACG 2021 Chapter 5 Quiz Patterson

Beginning inventory is $12,000; purchases are $34,000; sales revenue are $60,000; and cost of goods sold is $31,000. How much is ending inventory?

$15,000 -Cost of goods sold = Beginning inventory + purchases - ending inventory. Solve for ending inventory. Beginning inventory plus purchases less equals ending inventory ($12,000 + $34,000 - $31,000 = $15,000).

Ending inventory is $12,000, cost of goods sold is $33,000, and the cost of goods purchased is $22,000. How much is beginning inventory?

$23,000 -Cost of goods sold = Beginning inventory + purchases - ending inventory. Solve for ending inventory. Beginning balance is equal to ending inventory ($12,000) plus the cost of goods sold ($33,000) less the cost of goods purchased ($22,000) for a total of $23,000.

If beginning inventory is $60,000, cost of goods purchased is $380,000, sales revenue is $800,000 and ending inventory is $50,000, how much is cost of goods sold under a periodic system?

$390,000 -Cost of goods sold is computed by adding beginning inventory and cost of goods purchased and then subtracting ending inventory, or $60,000 + $380,000 - $50,000 = $390,000.

Martin Company purchases $4,200 of merchandise on March 1, with credit terms of 3/10, n/30. If Martin pays on March 11, Martin must pay

$4,074 -The terms 3/10, n/30 indicate that the discount is 3% if payment is made within 10 days of the invoice date. This permits Martin Company to take a discount of $126 (3% x $4,200) on the invoice, $4,200 - 126 = $4,074.

If beginning inventory is $80,000, cost of goods purchased is $400,000, sales revenue is $900,000 and ending inventory is $60,000, how much is cost of goods sold under a periodic system?

$420,000 -Cost of goods sold is computed by adding beginning inventory and cost of goods purchased and then subtracting ending inventory, or $80,000 + $400,000 - $60,000 = $420,000.

Vetter Corporation reports the following: Sales revenue, $400,000; sales discounts, $5,000; sales returns and allowances, $15,000; operating expenses, $25,000; cost of goods sold, $310,000; income tax expense, $10,000. How much are gross profit and income from operations, respectively?

$70,000 and $45,000 -Gross profit = Sales revenue - sales discounts - sales returns and allowances - cost of goods sold Gross profit =- $400,000 - 5,000 - 15,000 - 310,000 = $70,000 Income from operations = Gross profit - operating expenses Income from operations = $70,000 - 25,000 = $45,000

Heflin Corporation has the following: Sales revenue, $430,000 Sales returns and allowances, $20,000 Sales discounts, $10,000 Cost of goods sold, $310,000 Operating expenses, $60,000 Other expenses, $10,000 How much is its gross profit?

$90,000 -Net sales = Sales - Sales returns and allowances - Sales discounts Net sales = $430,000 - 20,000 - 10,000 = $400,000 Gross profit = Net sales- Cost of goods sold Gross profit = $400,000 - 310,000 = $90,000

Given the following quality of earnings ratios, which suggests the company may be using the most conservative accounting techniques? -0.2 -1.6 -1.0 -1.8 -0.6

1.8 -Since this ratio is significantly greater than 1, it suggests the use of the most conservative accounting techniques.

Which factor would not affect the gross profit rate?

An increase in the cost of heating the store

Which of the following is not a component or step of the operating cycle for a service company?

Buy inventory to be resold to customers

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

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

What type of account is Sales Returns and Allowances?

Contra revenue account

Indicate which one of the following would likely appear on both a multi-step income statement and a single-step income statement.

Cost of goods sold -Two formats for the income statement include: (1) single-step income statement and (2) multi-step income statement. Gross profit is reported exclusively on the multi-step income statement; gross profit is sales minus cost of goods sold. Many companies.that sell inventory use the multi-step income statement to highlight gross profit. Some companies that sell inventory continue to rely on the single-step income statement, so some companies that have cost of goods sold report cost of goods sold.

Which of the following would not be classified as an operating expense on a multi-step income statement?

Interest expense -Multi-step income statements report the following: Revenues minus cost of goods sold equals gross profit, and gross profit minus operating expenses (e.g., salaries & wages, advertising, utilities, depreciation, freight-out, insurance) equals income from operations, and income from operations minus non-operating income &/or expenses (e.g., interest revenue, interest expense, gain from sales of plant assets, losses from sales of plant assets) equals income before income taxes, and income before income taxes minus income taxes equals net income.

The operating cycle of a merchandising company has an extra asset account compared to a service company. What is that extra asset account?

Inventory

On what amount is a sales discount based?

Invoice price minus returns and allowances

Which is true about a wholesaler?

It sells to another business, which will sell to consuming customers.

Which of the following is true about a merchandiser?

Its revenue primarily comes from the sale of merchandise

Under what inventory system is cost of goods sold determined at the end of an accounting period?

Periodic inventory system -Under the periodic inventory system, cost of goods sold for the period is calculated by adding purchases for the period to the beginning inventory balance and subtracting the ending inventory balance.

Under what inventory system is cost of goods sold determined after each sale?

Perpetual inventory system

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

Perpetual inventory system

Which statement is true when goods are purchased for resale by a company using a periodic inventory system?

Purchases on account are debited to purchases.

Which of the following will not be shown on the income statement for a merchandising company?

Retained Earnings

How is gross profit measured?

Sales revenue minus cost of goods sold

Which one of the following equals cost of goods sold?

Sales revenue minus gross profit

A company's gross profit rate is lower this year compared to the prior year. Which of the following would not be a possible cause for this decline in the gross profit rate?

The company began selling products with a higher markup.

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

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

Indicate which one of the following would not likely appear on both a multi-step income statement and a single-step income statement.

gross profit

When a company using the periodic inventory system incurs and pays the freight costs when purchasing a shipment of inventory it debits

its Freight-In account.

A decline in a company's gross profit could be caused by all of the following EXCEPT

paying lower prices to its suppliers. -Recall that gross profit rate equals gross profit divided by net sales. An increase in the gross profit rate suggest either an increase in gross profit and/or a decrease in net sales. -An increase in a company's gross profit rate may be caused by selling products with higher gross margins (i.e., higher "mark-ups"), raising prices and/or offering fewer price discounts due to less competition from other companies, or decreases in sales allowances offered to customers.

Under what inventory system is cost of goods sold determined after each sale?

perpetual inventory system

Which of the following is a merchandising company that sells directly to consumers?

retailer

Arbol Corporation reports the following: Sales revenue $181,000; ending inventory $12,600; beginning inventory $15,000; purchases $65,600; purchases discounts $2,500; purchase returns and allowances $1,500; freight-in $600; freight-out $800. Calculate the cost of goods sold.

$64,600 -Cost of goods sold equals the beginning inventory plus purchases minus purchases discounts and purchases returns and allowances plus freight-in minus ending inventory. Cost of goods sold = 15,000 + 65,600 - 2,500 - 1,500 + 600 - 12,600 = 64,600.

Arbor Corporation reports the following: Sales revenue $186,000; ending inventory $12,600; beginning inventory $15,000; purchases $65,600; purchases discounts $2,500; purchase returns and allowances $1,000; freight-in $600; freight-out $800. Calculate the company's cost of goods sold.

$65,100 -Cost of goods sold sale equals the beginning inventory plus purchases minus purchases discounts and purchases returns and allowances plus freight-in minus ending inventory. Cost of goods sold = 15,000 + 65,600 - 2,500 - 1,000 + 600 - 12,600 = 65,100.

A credit sale of $750 is made on June 13, terms 2/10, n/30. It is followed by a return of $50 on June 16. If payment is made on June 23, how much cash is received?

$686 -The amount to be received as payment in full on June 23 is $686. Because payment is made within the discount period of 10 days, the amount received as payment in full is $700 ($750 - return of $50) minus the discount of $14 ($700 x 2%), or $686.

A company has the following balances: Sales revenue $312,000; Sales Returns and Allowances $2,000; Sales Discounts $4,000; Cost of Goods Sold $184,000; Operating Expenses $79,000; Other expenses $5,000. How much is the profit margin?

12.4% -Profit margin = Net income divided by net sales Net sales = Sales revenue minus sales returns and allowances minus sales discounts Net sales = 312,000 - 2,000 - 4,000 = 306,000 Net income = Net sales - cost of goods sold - operating expenses - other expenses Net income = 306,000 - 184,000 - 79,000 - 5,000 = 38,000 Profit margin = Net income divided by net sales Profit margin = 38,000/306,000 = 12.4%.

Sales revenue total $15,000. Sales returns and allowances are $750 and sales discounts are $1,000. The seller also pays $100 to ship the merchandise to the buyer. How much is net sales?

13,250

Heflin Corporation has the following: Sales revenue, $470,000 Sales returns and allowances, $20,000 Cost of goods sold, $320,000 Operating expenses, $100,000 Other expenses, $10,000 How much is its gross profit?

130,000 -Net sales = Sales - Sales returns and allowances - Sales discounts Net sales = $470,000 - 20,000 - 0 = $450,000 Gross profit = Net sales- Cost of goods sold

A company has the following accounts balances: Sales revenue $2,000,000; Sales Returns and Allowances $250,000; Sales Discounts $50,000; Cost of Goods Sold $1,275,000; and Net income $153,000. How much is the gross profit rate?

25% -Net sales = Sales revenue - sales returns and allowances - sales discounts Net sales = 2,000,000 - 250,000 - 50,000 = 1,700,000 Gross profit = Net sales - cost of goods sold Gross profit = 1,700,000 - 1,275,000 = 425,000 Gross profit divided by net sales equals the gross profit rate. Gross profit rate = 425,000/1,700,000 = 25%

A company has the following: Sales revenue $300,000; Sales Returns and Allowances $30,000; Sales Discounts $3,000; Cost of Goods Sold $107,000; Operating Expenses $60,000; Other expenses $7,600; Net Cash from Operating Activities $100,000. How much is the company's profit margin?

34.6% - Profit margin = Net income divided by net sales Net sales = Sales revenue minus sales returns and allowances minus sales discounts Net sales = 300,000 - 30,000 - 3,000 = 267,000 Net income = Net sales - cost of goods sold - operating expenses - other expenses Net income = 267,000 - 107,000 - 60,000 - 7,600 = 92,400 Profit margin = Net income divided by net sales Profit margin = 92,400/267,000 = 34.6%.

Harwell Company purchased merchandise with an invoice price of $2,000 and credit terms of 2/10, n/30. Assuming a 360 day year, what is the implied annual interest rate inherent in the credit terms?

36% -The company buying merchandise can wait 10 days and still receive a 2% discount. Otherwise, it can wait an additional 20 days and pay the full invoice amount without being overdue. In other words, a 20-day difference produces 2% interest. An interest rate of 2% in 20 days is equivalent to an interest rate of 36% in 360 days (i.e., 2% x 360/20). Alternatively: Interest = Principal x Interest rate x Time $20 = $1,000 x Interest rate x (30-10)/360 Solving for the interest rate: Interest rate = [360/(30-10)] x $20/$1,000 = 0.36 (i.e., 36%)

Helix Company purchased merchandise with an invoice price of $2,000 and credit terms of 3/10, n/40. Assuming a 360 day year, what is the implied annual interest rate inherent in the credit terms?

36% -The company buying merchandise can wait 10 days and still receive a 3% discount. Otherwise, it can wait an additional 30 days and pay the full invoice amount without being overdue. In other words, a 30-day difference produces 3% interest. An interest rate of 3% in 30 days is equivalent to an interest rate of 35% in 360 days (i.e., 3% x 360/30). Alternatively: The company must pay the invoice no later than 40 days after the sale. If it pays no later than 10 days after the invoice date, the company gets a 3% discount (i.e., 3% x $2,000 = $60). So, the company can save $60 if it pays 30 days before the due date. Interest = Principal x Interest rate x Time $60 = $2,000 x Interest rate x (40-10)/360 Solving for the interest rate: Interest rate = [360/(40-10)] x $60/$2,000 = 0.36 (i.e., 36%)

Which of the following statements is correct about the periodic inventory system?

A company which uses a periodic inventory system needs only one journal entry when it sells merchandise.

Which one of the following statements is correct

A company which uses a perpetual inventory system needs two journal entries when it sells merchandise

Which of the following would affect the gross profit rate if sales remain constant?

An increase in cost of goods sold -Gross profit rate is computed by dividing gross profit by net sales and any change in sales, sales returns in allowances, sales discounts, or the cost of goods sold will affect the ratio.

Which of the following describes how to compute the gross profit rate?

Net sales minus cost of goods sold, divided by net sales

Marsh uses a perpetual inventory system. On December 29, Marsh, Inc. sold inventory for $5,500 on account with terms 2/10 n/30. The customer pays on January 3. What amount will Marsh record in its inventory account on January 3?

No entry will be made. -In a perpetual inventory system, companies record increases to inventory when they buy it and when customers return it, and they record decreases to inventory when they sell it. It would record $5,500 of cost of goods sold on December 29 with a $5,500 decrease in inventory. Inventory does not increase or decrease on January 3. Under the periodic inventory system, all entries that will be made to the inventory account will be held at the end of the reporting period. If the company had used a periodic inventory system, no entry will be made on the sale date or the cash received date.

A company's gross profit rate increased in the current year relative to the prior year. Which of the following would be a possible explanation for this change?

The company's global sourcing efforts at the beginning of the current year resulted in a lower cost of merchandise sold.

Which of the following statements about inventory systems is correct?

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

Which of the following will result in negative gross profits?

Cost of goods sold exceeding sales revenue -Gross profit is net sales revenue less cost of goods sold, operating expense is subtracted later therefore does not affect gross profits. Only when cost of goods sold would exceed net sales revenue can gross profits be negative.

Starlight Corporation, which uses a perpetual inventory system, purchased $3,000 of merchandise on August 2 on account. Credit terms were 1/10, n/30. It returned $250 of the merchandise on August 4. Which of the following is one effect when Starlight pays its bill on August 12?

Credit Inventory for $27.50 -The discount terms are 1/10, n/30 which indicates a 1% discount if paid within 10 days, but the full amount is due without a discount thereafter and payment is considered overdue 30 days after the invoice date. Since the bill is paid 10 days after the invoice date, the discount applies. Payment requires paying the net purchase reduced by the discount (i.e., 99% x ($3,000 - 250) = $2,722.50). The discount is 1% of the bet purchase (i.e., 1% x ($3,000 - 250) - $27.50). The journal entry to record the payment includes a debit Accounts Payable for $2,750, a credit to Inventory for the discount (i.e., $27.50), and a credit to Cash for $2,722.50. Note that the discount reduces the inventory account balance because the company uses the perpetual inventory system.

Marsh uses a perpetual inventory system. On December 29, Marsh, Inc. sold inventory for $5,500 on account with terms 2/10 n/30. The customer pays on January 3. What amount will Marsh record in its inventory account on December 29?

Credit of $5,500 -In a perpetual inventory system, companies record increases to inventory when they buy it and when customers return it, and they record decreases to inventory when they sell it. It would record $5,500 of cost of goods sold on December 29 with a $5,500 decrease in inventory. Under the periodic inventory system, all entries that will be made to the inventory account will be held at the end of the reporting period. If the company had used a periodic inventory system, no entry will be made on the sale date or the cash received date.