Checkpoint Quiz (5 & 6)

The following information pertains to Lindsey Corp. at the end of the year: Credit Sales $150,000 Accounts Payable 20,000 Accounts Receivable 30,000 Allowance for Uncollectible Accounts 800 debit Cash Sales 5,500 Lindsey Corp. uses the percentage-of-credit-sales method and estimates that 2% of the credit sales are uncollectible. After the year-end adjustment, what amount of bad debt expense would Lindsey report for the year?

$3,000 Bad debt expense = $150,000 × 2% = $3,000

Given the information below, what is the gross profit? Sales revenue $320,000 Accounts receivable 50,000 Ending inventory 100,000 Cost of goods sold 250,000 Sales returns 20,000

$50,000 Sales revenue ($320,000) − Sales returns ($20,000) − Cost of goods sold ($250,000) = $50,000

LeGrand Corporation reported the following amounts in its income statement: Sales revenue $440,000 Advertising expense 60,000 Interest expense 10,000 Salaries expense 55,000 Utilities expense 25,000 Income tax expense 45,000 Cost of goods sold 180,000 What was LeGrand's net income?

$65,000 $440,000 − $180,000 − ($60,000 + $55,000 + $25,000) - $10,000 − $45,000 = $65,000

A company has net sales of $200,000, cost of goods sold of $120,000, selling expenses of $6,000, and nonoperating expenses of $2,000. What is the company's gross profit?

$80,000 $200,000 − $120,000 = $80,000

Allowance for Uncollectible 855 Accounts Receivable 855

A: +/-855

Sales Returns 1,580 Accounts Receivable 1,580

A: -1,580 SE: -1,580 R: -1,580 NI: -1,580

Accounts Payable 3,500 Cash 3,500

A: -3,500 L: -3,500 CF: -OA

Accounts Payable 3,500 Inventory 50 Cash 3,450

A: -3,500 L: -3,500 CF: -OA

Shipping Expense 400 Cash 400

A: -400 SE: -400 E: 400 NI: -400 CF: -OA

Cash 10,600 Notes Receivable 10,000 Interest Revenue 600

A: 600 SE: 600 R: 600 NI: 600 CF: +OA

ABC Company uses the perpetual inventory method. On March 2, ABC sold $7,250 of merchandise, terms 2/10, n/30 to XYZ. The goods cost $3,000. Select the option that best represents the sale on March 2

Accounts Receivable 7,250 Sales Revenue 7,250 Cost of Goods Sold 3,800 Inventory 3,800

The method of estimating uncollectible accounts based on the length of time the amount is owed by the customer is referred to as the:

Aging method

ABC deemed Toad incorporates $2,700 account uncollectible. Select the option that represents the entry write-off the account assuming the company utilizes the allowance method

Allowance for Uncollectible Accounts 2,700 Accounts Receivable 2,700

Accounts receivable are normally reported at the:

Amount expected to be collected.

The cost of unsold inventory at the end of the year is classified as a(n) ________ in the ________.

Asset; Balance sheet

One advantage of the allowance method for accounting for uncollectible accounts is that the company reports:

Bad debt expense in the same period as the credit sale

On February 2, ABC sold $8,500 of merchandise inventory on account, terms 2/10, n/30. Select the option that best represents how ABC would record receipt of payment if received on February 10

Cash 8,330 Sales Discount 170 Accounts Receivable 8,500

The inventory cost flow assumption that generally best matches the physical flow of inventory is:

FIFO

Select the correct entry for the following transaction for ABC Company. ABC purchased $6,500 of merchandise inventory on account, terms 2/10, n/30. Select the option that represents this purchase of inventory.

Inventory 6,500 Accounts Payable 6,500

What type of company purchases raw materials and makes goods to sell?

Manufacturer

The amount of cash that is actually expected to be collected on accounts receivable is referred to as:

Net accounts receivable

On March, ABC sold $9,500 of merchandise on account, terms 2/10, n/30 to XYZ. The goods cost $3,100. XYZ returned $900 worth of goods on March 5. The goods cost $360. Select the option that best represents the return on March 5

Sales Returns 900 Accounts Receivable 900 Inventory 360 Cost of Goods Sold 360

Gershwin Wallcovering Inc. shipped the wrong shade of paint to a customer. The customer agreed to keep the paint upon being offered a 15% price reduction. The price reduction is an example of a:

Sales allowance

When customers purchase goods on account, Spitz Manufacturing offers them a 2% reduction in the amount owed if they pay within 10 days. This is an example of a:

Sales discount

The inventory costing method that matches each unit of inventory with its actual cost is referred to as the ________ method

Specific identification

Prior to year-end adjusting entries, what would explain the Allowance for Uncollectible Accounts having a debit balance?

The amount of actual uncollectible accounts in the current year was greater than the estimate of uncollectible accounts made at the end of the prior year

The percentage-of-credit-sales method for estimating uncollectible accounts is sometimes described as:

The income statement method

The receivables turnover ratio indicates:

The number of times during a year that the average accounts receivables were collected.

The primary difference between the periodic and perpetual inventory systems is:

The perpetual system maintains a continual record of inventory transactions, whereas the periodic system records these transactions only at the end of the period

Merchandise sold FOB shipping point indicates that:

The seller transfers title to the buyer once the merchandise is shipped

Gross profit is calculated as net sales minus:

cost of goods sold