LS chpt 6

Retailers

Buys goods and sells them directly to individuals

Wholesaler

Buys goods and sells them to other companies that will then sell them to individuals

The entry to record the revenue recognized from the service portion of a bundle sale that was collected in advance is recorded with a debit to ______ and a credit to ______.

Deferred Revenue; Service Revenue

Beginning Inventory + Purchases = _____.

Goods Available for Sale

Why is inventory reported as a current asset?

Inventory is reported as a current asset because it will be converted into cash within a year of the balance sheet date.

The purchase of merchandise on account is recorded with a debit to ______ and a credit to ______.

Inventory; Accounts Payable

Manufacturing Company

Makes the finished goods

Which of the following items are netted against Sales Revenue to arrive at Net Sales (Sales Revenue to net sales)? (Select all that apply.)

Sales Allowances Sales Returns Sales Discounts

Service Company

Will typically not have Inventory on its balance sheet or Cost of Goods Sold on its income statement

ABC Company had beginning inventory of $20,000, purchases of $81,000, and ending inventory of $24,000. Sales revenue was $160,000. What is ABC's gross profit percentage?

52%

Alpha Company bought inventory from Omega Company, FOB shipping point. On December 31, the last day of the accounting year, the goods were on a truck owned by Theta, Inc., exactly half-way between Alpha and Omega. Which company should include these goods in its December 31 inventory?

Alpha

The entry to record the purchase of inventory on account causes ______.

an increase in assets and liabilities

Sales returns and allowances ______.

are typically recorded after the initial sale when the actual return or allowance occurs are adjusted for at the end of the accounting period for estimated returns and allowance expected to occur in the following months reduce the amount the seller expects to receive from customers

Boopsie Agin, the company's bookkeeper, recorded the purchase of merchandise on account with a debit to Cost of Goods Sold and a credit to Cash. As a result, ______. (Check all that apply.) -liabilities are understated -stockholders' equity is understated -assets are overstated -assets are understated -stockholders' equity is overstated -liabilities are overstated

assets are understated liabilities are understated stockholders' equity is understated

The Cost of Goods Sold equation is ______.

beginning inventory + purchases - ending inventory

Sales Returns & Allowances is a ______ account and is ______ when goods are returned by customers for a refund.

contra-revenue; debited

The Inventory balance on the balance sheet reports the ______.

cost of goods available for sale

Cost of Goods Sold on the income statement reports the ______.

cost times the quantity of goods sold during the period

Inventory account consists of all ______.

costs needed to get the inventory ready for sale

In a perpetual system, the entry to record a purchase of merchandise on account includes a ______. (Check all that apply.) -debit to Accounts Payable -debit to Accounts Receivable -credit to Accounts Payable -credit to Accounts Receivable -debit to Inventory -credit to Inventory

credit to Accounts Payable debit to Inventory

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

deduction from sales

The seller of inventory pays for shipping if the shipping terms are FOB ______.

destination

A benefit of the ___ inventory system is that inventory shrinkage from theft, fraud and error is able to be estimated

perpetual

Inventory consists of the purchase price ______.

plus freight-in

Cost of goods sold equals beginning inventory plus ___ minus ending inventory

purchases

FOB ______ is the term used when ownership of the goods transfers to a buyer as soon as the goods leave the seller's place of business.

shipping point

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

there are product quality issues

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

What does the gross profit percentage tell you?

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

____ companies sell goods that have been obtained from other companies.

Merchandising

Gross profit percentage is calculated as ______.

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

To ensure the accuracy of inventory accounted for using a perpetual system, physical counts ______. (Check all that apply.) -detect bookkeeping errors -detect theft -detect shrinkage

detect bookkeeping errors detect theft detect shrinkage

Merchandisers record revenue when they ______.

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

______ is classified as a(n) ______ asset and reports the amount of merchandise available to sell

inventory, current

Accounts Payable ______. (Check all that apply.) -is debited when amounts owed are paid -is credited for purchases made on account -is debited for purchases made on account -is credited when amounts owed are paid

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

On May 1, Doormart received an order from a customer. The goods were shipped FOB shipping point on May 3. The customer received the goods on May 5 and paid for the merchandise on June 1. When should Doormart record the sale?

may 3

Inventory shrinkage as a result of theft, damage or obsolescence that is discovered during a physical inventory count at the end of the accounting period is recorded with a decrease to Inventory ______.

only in a perpetual system

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

payment of amounts owed for purchases made on account

If Inventory is debited and Accounts Payable is credited, then the company uses the ______.

perpetual inventory system and is recording a purchase on account

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

received by the customer

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 which month(s) 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 February.

Beginning Inventory + Purchases - Ending Inventory = ______.

Cost of Goods Sold on the income statement

Berkley Company had beginning inventory of $4,000 and purchases of $20,000. If half of its inventory is sold, Berkley's total goods available for sale for the period will ______.

be split between cost of goods sold and ending inventory

Net Sales on an income statement equals Sales Revenue ______.

minus Sales Returns, Allowances and Discounts

XYZ's journal entry to record the return of merchandise previously purchased on account by XYZ was recorded by debiting Inventory and crediting Accounts Payable. As a result of this entry, ______.

liabilities will be overstated assets will be overstated

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

In which company would you rather invest?

A company with high gross profit percentage and high sales volume

Place the income statement line items in the proper order from the top to bottom.

sales revenue gross, sales return allowances and discounts, sales revenue net, cost of goods sold, gross profit

A multistep income statement is useful to financial statement users because it ______. (Select all that apply.)

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

To determine cost of goods sold for the period requires ______.

subtracting ending inventory from the goods available to sell, which is the beginning inventory plus purchases

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

they arrive at the buyer's place of business

Bijoux Company has Net Sales of $40,000; Beginning Inventory of $5,000; Purchases of $25,000 and Ending Inventory of $7,000. Cost of Goods Sold equals ______.

23,000 Reason: Cost of Goods Sold of $23,000 = Beginning Inventory of $5,000 + Purchases of $25,000 - $7,000 of Ending Inventory.

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.

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

Freight-in with terms FOB shipping point

In which of these situations would a merchandiser record revenue?

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

Which of the following are found on the income statement of a merchandiser? (Check all that apply.) -Cash -Gross Profit -Deferred Revenue -Accounts Receivable -Inventory -Sales Revenue -Cost of Goods Sold

Gross Profit Sales Revenue Cost of Goods Sold

Breyer Company bought inventory from Solar Company, FOB destination. On December 31, the last day of the accounting year, the goods were on a truck owned by Common Carrier, Inc., and not expected to arrive until January 2. Which company should include these goods in its December 31 inventory?

Solar

In a perpetual system, the entry to record the sale of merchandise to a customer on account would include a ______. (Check all that apply.) -debit to Sales Revenue -credit to Inventory -debit to Accounts Receivable -debit to Cost of Goods Sold -credit Sales Revenue -debit to Inventory -credit to Cost of Goods Sold -credit to Accounts Receivable

credit to Inventory debit to Accounts Receivable debit to Cost of Goods Sold credit Sales Revenue

The Inventory account may be credited for ______.

purchase returns and allowances

Ace Electronics, which uses a perpetual inventory system, recorded a debit to Sales Returns & Allowances and a credit to Accounts Receivable, along with a debit to Inventory and a credit to Cost of Goods Sold. What business event must have taken place?

The customer received a damaged product and returned it.

a _____ income statement shows how much profit is earned from product sales without being clouded by other operating expenses and separates other items that are not core to the operations of the company

multistep

Which of the following should be debited to Inventory? (Select all that apply.) -purchase discounts -purchases of merchandise on account -freight-in if shipped FOB shipping point -freight-out

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

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)).