ACTG Ch.

Cost of goods sold is characterized by which of the following statements?

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

Sticky Company's merchandise inventory balance at year end is $15050, but a physical count reveals that only $15000 of inventory exists. The adjusting entry to record the shrinkage includes:

-Credit to Merchandise Inventory for $50; Debit to Cost of Goods Sold for $50

Determine which statements below are correct regarding merchandise available for sale during a period.

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

Which of the statements below summarize why a seller would give a sales allowance?

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

Identify the statements below that are correct regarding the closing entries for a merchandiser using the perpetual inventory system

-Sales Discount is closed with the expense accounts -The Dividends account is closed to Retained Earnings -Sales Returns and Allowances is closed with the expense accounts -Cost of goods sold is closed with the expense accounts -Sales is closed as a revenue account

Explain what the credit terms of 2/10, n/30 mean.

-The buyer can deduct 2% of the invoice amount if payment is made within 10 days of the invoice date. -The full payment is due within a 30-day credit period sellers require payment within 10 days (EOM) of the invoice date, 2% deduction in w/in 10 days.

Which of the following costs are included in merchandise inventory?

-Costs necessary to ready the merchandise for sale -Shipping fees -Purchase costs Inventory cost includes the cost to buy the goods, ship them to the store, and make them ready for sale

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.

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

Complete the following statement. Merchandise inventory that is still available for sale is considered a(n) _ and is reported on the _ and merchandise that is sold during the period is considered a(n) _ and reported on the _

-asset -balance sheet -expense -income statement

A purchase return refers to merchandise a _ purchased, but then returns to the _ for a refund of the purchase price or reduction in the amount owed.

-buyer -seller

A merchandiser has four closing journal entries at the end of an accounting cycle. Select the correct entries below.

-close revenue accounts -close the dividends account -close the income summary account -close expense accounts

Identify the items or sub-headings below that would appear on a multiple-step income statement

-cost of goods sold -gross profit -income from operations -net sales -selling expenses -general and administrative expenses

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

-cost of goods sold is subtracted from net sales in order to determine gross profit -all expenses are subtracted from gross profit in order to calculate net income

Which of the following are the three main parts of a multiple-step income statement?

-gross profit -income from operations -net income

The components of a merchandiser's multi-step income statement are shown below. In which order would they appear on the statement?

1. Net sales 2. Cost of goods sold 3. Gross profit 4. Expenses 5.Net income

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

1. Sales 2. Cost of goods sold 3. Gross profit 4. Operating expenses 4. Income from operations 5. Other revenues and expenses

Review the following credit terms and identify the one that states that the buyer will receive a 3% discount if the payment is made within 15 days. Otherwise, full payment is expected within 45 days of the Invoice date

3/15, n/45

What is a purchase return

A purchase return refers to merchandise a buyer acquires, but then returns to the seller

What is a sales return?

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

Explain how to determine gross profit on an income statement by selecting the correct statement below.

Cost of goods sold is subtracted from net sales

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 Cash $300

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

FOB destination

Toys R Fun purchased $4000 of merchandise and paid immediately. To record this transaction, Toys R Fun's accountant would debit the _ account and credit the _ account

Merchandise Inventory; Cash

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 purchases for saleI

Identify the statement below that is the correct definition of "shrinkage".

Refers to the loss of inventory due to theft, breakage or deterioration is the loss of inventory; it is computed by comparing a physical count of inventory with recorded amounts

A sales allowance can be describes as:

a reduction in the selling price of defective or unacceptable merchandise sold to customers keep the merchandise along with a partial refund

Complete the following statement. Merchandise Inventory that is still available for sale is considered a(n) and reported on the _ and merchandise that is sold during the period is considered a(n) _ and reported on the _

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

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

cost of goods sold is expensive of buying and preparing merchandise.

In the operating cycle for a merchandiser with credit sales, after purchasing merchandise inventory for sale to customers, the next step is to make a _ sale

credit

A sales return to merchandise that _ return to the _ after a sale for a refund of the purchase price or reduction in the amount owed

customers; seller

Jo's Market makes a credit sale for $1000 with terms of 2/10, n/30. The cost of merchandise is $400. The required journal entry to record the sale and cost of the sale is:

debit Accounts Receivable $1000; credit Sales $1000; 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

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

net expenses

The cash operating cycle for a merchandiser begins with cash purchases of merchandise and ends with _.

receipt of cash

Gross profit is computed as net _ minus cost of goods sold

sales