accounting 2

Sales less sales discounts, less sales returns and allowances equals a. Net purchases. b. Cost of goods sold. c. Net sales. d. Gross profit. e. Net income.

Net sales.

Merchandise inventory includes: a. All goods that a company owns and holds for sale. b. All goods in transit. c. All goods on consignment. d. Only damaged goods. e. Only non-damaged goods.

a. All goods that a company owns and holds for sale.

A merchandiser: a. Earns net income by buying and selling merchandise. b. Receives fees only in exchange for services. c. Earns profit from commissions only. d. Earns profit from fares only. e. Buys products from consumers.

a. Earns net income by buying and selling merchandise.

Goods on consignment are: a. Goods sent by the owner to the consignee who sells the goods for the owner. b. Reported in the consignee's books as inventory. c. Goods shipped to the consignor who sells the goods for the owner. d. Not reported in the consignor's inventory since they do not have possession of the inventory. e. Always paid for by the consignee when they take possession.

a. Goods sent by the owner to the consignee who sells the goods for the owner.

The inventory costing method that results in the lowest taxable income in a period of rising costs is: Multiple Choice a. LIFO method. b. FIFO method. c. Weighted-average cost method. d. Specific identification method. e. Gross profit method.

a. LIFO method.

Garza Company had sales of $140,200, sales discounts of $2,100, and sales returns of $3,365. Garza Company's net sales equals: a. $5,465. b. $134,735. c. $138,100. d. $140,200. e. $145,665.

b. $134,735. Net Sales = $140,200 − $2,100 − $3,365 = $134,735

Prince Company had cash sales of $95,525, credit sales of $84,200, sales returns and allowances of $2,200, and sales discounts of $3,975. Prince's net sales for this period equal: a. $95,525. b. $173,550. c. $175,750. d. $177,525. e. $179,725.

b. $173,550. Net Sales = $95,525 + $84,200 − $2,200 − $3,975 = $173,550

A company has net sales of $870,000 and cost of goods sold of $577,000. Its net income is $104,000. The company's gross profit and operating expenses, respectively, are: a. $293,000 and $389,000 b. $293,000 and $189,000 c. $293,000 and $104,000 d. $189,000 and $104,000 e. $681,000 and $189,000

b. $293,000 and $189,000 Gross Profit = Net Sales − Cost of Goods Sold; $870,000 − $577,000 = $293,000 Operating Expenses = Gross Margin − Net Income; $293,000 − $104,000 = $189,000

Merchandise inventory: a. Is a long-term asset. b. Is a current asset. c. Includes supplies the company will use in future periods. d. Is classified with investments on the balance sheet. e. Must be sold within one month.

b. Is a current asset.

Cost of goods sold: a. Is another term for merchandise sales. b. Is the term used for the expense of buying and preparing merchandise for sale. c. Is another term for revenue. d. Is also called gross margin. e. Is a term only used by service firms.

b. Is the term used for the expense of buying and preparing merchandise for sale.

Beginning inventory plus net purchases is: a. Cost of goods sold. b. Merchandise available for sale. c. Ending inventory. d. Sales. e. Shown on the balance sheet.

b. Merchandise available for sale.

Goods in transit are included in a purchaser's inventory: a. At any time during transit. b. When the goods are shipped FOB shipping point. c. When the supplier is responsible for freight charges. d. If the goods are shipped FOB destination. e. After the half-way point between the buyer and seller.

b. When the goods are shipped FOB shipping point.

Cushman Company had $814,000 in sales, sales discounts of $12,210, sales returns and allowances of $18,315, cost of goods sold of $386,650, and $280,015 in operating expenses. Gross profit equals: a. $783,475. b. $116,810. c. $396,825. d. $409,035. e. $415,140.

c. $396,825. Gross Profit (Margin) = $814,000 − $12,210 − $18,315 − $386,650 = $396,825

Sandoval needs to determine its year-end inventory. The warehouse contains 33,000 units, of which 4,300 were damaged by flood and are not sellable. Another 3,300 units were purchased from Markor Company, FOB shipping point, and are currently in transit. The company also consigns goods and has 5,300 units at a consignee's location. How many units should Sandoval include in its year-end inventory? Multiple Choice a. 30,700 b. 41,600 c. 37,300 d. 45,900 e. 34,000

c. 37,300 Explanation 33,000 − 4,300 + 3,300 + 5,300 = 37,300

Which of the following statements regarding gross profit is false? a. Gross profit is also called gross margin. b. Gross profit less other operating expenses equals income from operations. c. Gross profit is calculated on the single-step income statement, not the multi-step income statement. d. Gross profit must cover all operating expenses to yield a return for the owner of the business. e.Gross profit equals net sales less cost of goods sold.

c. Gross profit is calculated on the single-step income statement, not the multi-step income statement.

The expenses of advertising merchandise, making sales, and delivering goods to customers are known as: a. General and administrative expenses. b. Cost of goods sold. c. Selling expenses. d. Purchasing expenses. e. Non-operating activities.

c. Selling expenses.

Cushman Company had $818,000 in sales, sales discounts of $12,270, sales returns and allowances of $18,405, cost of goods sold of $388,550, and $281,395 in operating expenses. Net income equals: a. $787,325. b. $148,055. c. $398,775. d. $117,380. e. $178,730.

d. $117,380. Net Income = $818,000 − $12,270 − $18,405 − $388,550 − $281,395 = $117,380

A company has net sales of $375,000 and its gross profit is $157,500. Its cost of goods sold is: a. $197,000. b. $375,000. c. $157,500. d. $217,500. e. $532,500.

d. $217,500. Explanation Gross Profit = Net Sales − Cost of Goods SoldCost of Goods Sold = $375,000 − $157,500 = $217,500

A company has net sales of $722,200 and cost of goods sold of $289,200. Its gross profit equals: a. $253,000. b. $722,200. c. $289,200. d. $433,000. e. $1,011,400.

d. $433,000. Explanation Gross Profit = Net Sales − Cost of Goods SoldGross Profit = $722,200 − $289,200 = $433,000

When purchase costs regularly rise, the inventory costing method that yields the highest reported net income is: Multiple Choice a. Specific identification method. b. Average cost method. c. Weighted-average method. d. FIFO method. e. LIFO method.

d. FIFO method.

Expenses that support a company's overall operations and include expenses related to accounting, human resources, and finance are known as: a. Cost of goods sold. b. Selling expenses. c. Purchasing expenses. d. General and administrative expenses. e. Non-operating activities.

d. General and administrative expenses.

The inventory costing method that identifies each item in ending inventory with a specific purchase and invoice is the: Multiple Choice a. Weighted average inventory method. b. First-in, first-out method. c. Last-in, first-out method. d. Specific identification method. e. Retail inventory method.

d. Specific identification method.

Regardless of the inventory costing system used, cost of goods available for sale must be allocated at the end of the period between: a. beginning inventory and net purchases during the period. b. ending inventory and beginning inventory. c. net purchases during the period and ending inventory. d. ending inventory and cost of goods sold. e. beginning inventory and cost of goods sold.

d. ending inventory and cost of goods sold.

On December 31 of the current year, Plunkett Company reported an ending inventory balance of $215,000. The following additional information is also available: Plunkett sold and shipped goods costing $38,000 to Savannah Enterprises on December 28 with shipping terms of FOB shipping point. The goods were not included in the ending inventory amount of $215,000. Plunkett purchased goods costing $44,000 on December 29. The goods were shipped FOB destination and were received by Plunkett on January 2 of the following year. The shipment was a rush order that was supposed to arrive by December 31. These goods were included in the ending inventory balance of $215,000. Plunkett's ending inventory balance of $215,000 included $15,000 of goods being held on consignment from Carole Company. (Plunkett Company is the consignee.) Plunkett's ending inventory balance of $215,000 did not include goods costing $95,000 that were shipped to Plunkett on December 27 with shipping terms of FOB destination and were still in transit at year-end. Based on the above information, the amount that Plunkett should report in ending inventory on December 31 is: Multiple Choice a. $194,000 b. $209,000 c. $200,000 d. $171,000 e. $156,000

e. $156,000 Start with beginning inventory of $215,000. The information in the first bullet point was handled correctly. No adjustment is needed for that merchandise. For the second bullet point, the $44,000 of goods should not have been included in ending inventory since the goods were shipped FOB destination. Subtract $44,000. For the third bullet point, ending inventory should not include goods held on consignment from another company. Subtract $15,000. The information in the fourth bullet point was handled correctly. No adjustment is needed. $215,000 − $44,000 − $15,000 = $156,000.

Bedrock Company reported a December 31 ending inventory balance of $413,000. The following additional information is also available: The ending inventory balance of $413,000 included $73,400 of consigned inventory for which Bedrock was the consignor. The ending inventory balance of $413,000 incorrectly included $24,800 of office supplies that were stored in the warehouse and were to be used by the company's supervisors and managers during the coming year. Based on this information, the correct balance for ending inventory on December 31 is: Multiple Choice a. $413,000 b. $339,200 c. $314,400 d. $303,000 e. $388,200

e. $388,200 Start with beginning inventory of $413,000. The information in the first bullet point was handled correctly since inventory should include consigned goods for which the subject company is the consignor. No adjustment. With respect to the second bullet point, inventory should not include office supplies held for use. Subtract $24,800. Ending inventory should be $413,000 − $24,800 = $388,200.

Which of the following costs is not included in the Merchandise Inventory account? Multiple Choice a. Invoice price minus any discount. b. Import duties. c. Storage. d. Insurance. e. Damaged inventory that cannot be sold.

e. Damaged inventory that cannot be sold.

Which of the following is not an inventory costing method? Multiple Choice a. LIFO method. b. FIFO method. c. Specific identification method. d. Weighted average method. e. Gross margin method.

e. Gross margin method.