Accounting Ch 6
The income statement for ABC Company shows Gross profit of $144,000; Operating expenses of $130,000; and Cost of goods sold of $216,000. What is net sales revenue?
$360,000 Reason: Net sales revenue - Cost of goods sold = Gross profit. To solve for sales, rearrange the equation as Gross profit + Cost of goods sold = Net sales revenue (= $144,000 + 216,000 = $360,000).
Which of the following are found on the income statement of a merchandiser? (Check all that apply.)
Cost of Goods Sold Gross Profit Sales Revenue
Beginning Inventory + Purchases - Ending Inventory = ______.
Cost of Goods Sold on the income statement
inventory is reported as a_____ on the _____
Current asset; balance sheet only
Which of the following costs should be added to the buyer's Inventory account?
Freight-in with terms FOB shipping point
____ Is classified as a____ asset and reports the amount of merchandise available to sell.
Inventory Current
In a perpetual inventory system, the return of merchandise XYZ recently purchased on account will have the following effects on XYZ's accounting equation. (Check all that apply.)
Liabilities will decrease. Assets will decrease.
______ companies sell goods that have been obtained from other companies
Merchandising
Which of the following are reported on the income statement? (Check all that apply.)
Sales Revenue Gross Profit Cost of Goods Sold
Manufacturing companies
Sell goods that they have made themselves
Service companies
Sell service rather than physical goods.
In a perpetual inventory system, which of the following statements are true? (Check all that apply.)
The seller should record freight-out as a selling expense. The purchaser should record freight-in as an asset, Inventory.
The entry to record the purchase of inventory on account causes ______.
an increase in assets and liabilities
Sales returns and allowances ______. (Select all that apply.)
are typically recorded after the initial sale when the actual return or allowance occurs reduce the amount the seller expects to receive from customers are adjusted for at the end of the accounting period for estimated returns and allowance expected to occur in the following months
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
Sales Returns & Allowances is a ______ account and is ______ when goods are returned by customers for a refund.
contra-revenue; debited
Cost of Goods Sold on the income statement reports the ______.
cost times the quantity of goods sold during the period
In a perpetual system, the entry to record a purchase of merchandise on account includes a ______. (Check all that apply.)
credit to Accounts Payable debit to Inventory
Using a perpetual inventory system, the journal entry to record a sale on account will include a ______. (Check all that apply.)
debit to Cost of Goods Sold a credit to Sales Revenue debit to Accounts Receivable credit to Inventory
Which of the following should be debited to Inventory? (Select all that apply.)
freight-in if shipped FOB shipping point purchases of merchandise on account
Any costs incurred to get the merchandise into a condition and location ready for sale should be debited to ______.
inventory
In a perpetual system, the __________ account is debited when a company purchases merchandise on account.
inventory
If Accounts Payable is debited and Cash is credited, then the company is recording a ______.
payment of amounts owed for purchases made on account
Inventory consists of the purchase price ______.
plus, freight in
If a seller sells its merchandise with the shipping terms FOB destination, it credits Revenue when the merchandise is _______.
received by the customer
The journal entry to record the payment for merchandise previously purchased on account will cause stockholders' equity to ______.
remain unchanged
A multistep income statement is useful to financial statement users because it ______. (Select all that apply.)
separates income statement items into meaningful components separates cost of goods sold from other operating expenses, which allows the calculation of gross profit
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 ______.
$3000
In which of these situations would a merchandiser record revenue? (Select all that apply.)
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 these will require a credit to the inventory account in a perpetual inventory system? (Check all that apply.)
Selling inventory on account Selling inventory for cash
Acme Enterprises, which uses a perpetual inventory system, recorded a debit to Sales Returns & Allowances and a credit to Accounts Receivable. (No other accounts were affected.) What business event must have taken place?
The customer received a damaged product, but kept the product and asked for a reduction in the price.
Manufacturing Companies
sell goods that have been obtained from supplier
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
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.
What does the sales discount 2/10, n/30 mean?
You can take a 2% discount if you pay within 10 days, or the full amount is due within 30 days.
If sales returns and allowances are a large dollar amount relative to initial sales revenue, it may mean ______.
there are product quality issues
The Cost of Goods Sold equation is ______.
Beginning Inventory + Purchases - Ending Inventory
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
To ensure the accuracy of inventory accounted for using a perpetual system, physical counts ______. (Check all that apply.)
detect theft detect shrinkage detect bookkeeping errors
A benefit of the_____ Inventory system is that inventory shrinkage from theft, fraud and error is able to be estimated.
perpetual
Place the income statement line items in the proper order from the top to bottom.
sales revenue gross Sales returns, allowances and discounts Sales revenue, net Cost of goods sold Gross profit
Using a perpetual inventory system, the entry to record the return of goods you previously purchased on account includes a ______. (Check all that apply and answer from the viewpoint of the buyer.)
debit to Accounts Payable credit to Inventory
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 what month should the service contract be recognized as revenue?
$5,000 in each month from November to February
Put the 5-step revenue model for a bundle sale in its proper order by placing the 1st step at the top.
1. Identify the contract 2. identify the seller's performance obligations 3. determine the transaction price 4. Allocate the transaction price to each performance obligation in the bindle sale 5. recognize revenue when (or as) each performance obligation is satisfied.