Accounting CH.5

Which of the following statements about a periodic inventory system is true?

Companies determine cost of goods sold only at the end of the accounting period.

The operating cycle of a merchandising company is ordinarily ___________________ that of a service firm.

longer than

The gross profit rate is equal to:

net sales -cost of goods sold (divided by) net sales.

Gross profit will result if:

net sales are greater than cost of goods sold.

Under a perpetual inventory system, when goods are purchased for resale by a company:

purchases on account are debited to Inventory.

When goods are purchased for resale by a company using a periodic inventory system:

purchases on account are debited to Purchases.

A quality of earnings ratio:

that is less than 1 indicates that a company might be using aggressive accounting tactics.

To record the sale of goods for cash in a perpetual inventory system:

two journal entries are necessary: -one to record the receipt of cash and sales revenue & -one to record the cost of goods sold and reduction of inventory.

A company makes a credit sale of $750 on June 13, terms 2/10, n/30, on which it grants a return of $50 on June 16. What amount is received as payment in full on June 23?

$686. (750-50) - (750-50 x .02)

Ramos Company receives a payment on account from Martinez Industries. Based on the original sale of $12000 using the periodic inventory approach, Ramos Company honors the 3% cash discount and records the payment. Which of the following is the correct entry for Ramos Company to record?

*$12000 × 3% = $360 sales discount DR Cash 11640 DR Sales Discounts 360 CR Accounts Receivable 12000

If beginning inventory is $60,000, cost of goods purchased is $380,000, and ending inventory is $50,000, what is cost of goods sold under a periodic system?

$390,000. 60,000+ 380,000- 50,000

Conway Company purchased merchandise inventory with an invoice price of $12000 and credit terms of 2/10, n/30. What is the net cost of the goods if Conway Company pays within the discount period?

$12000 × 98% = $11760 (Purch. amount × (1-2%))

Sampson Company's's accounting records show the following for the year ending on December 31, 2017. Purchase Discounts $ 11200 Freight-in 15600 Purchases 700020 Beginning Inventory 47000 Ending Inventory 57600 Purchase Returns and Allowances 12800 Using the periodic system, the cost of goods purchased is

$700020 (purchases) - $11200 (purchases discounts) - $12800 (purchase ret/all) + $15600 (freight-in) = $691620 (COG purchased)

Bufford Corporation had reported the following amounts at December 31, 2017: sales revenue $184,000, ending inventory $11,600, beginning inventory $17,200, purchases $60,400, purchase discounts $3,000, purchase returns and allowances $1,100, freight-in $600, and freight-out $900. Calculate the cost of goods available for sale.

$74,100. 17,200 (beg. inventory) +60,400 (purchases) -3,000 (purchase discounts) -1,10 (purchase returns and allowances) +900 (freight-in) = 74,100

If net sales are $400,000, cost of goods sold is $310,000, and operating expenses are $60,000, what is the gross profit?

$90,000. 400,000- 310,000

Jax Company uses a perpetual inventory system and on November 30 purchased merchandise for which it must pay the shipping charges. Which of the following is one part of the required journal entry when Jax pays the shipping charges of $200?

*Recall that under a perpetual inventory system all costs of inventory are accumulated in one account. A debit to Inventory for $200

Perpetual System

-A detailed inventory system in which a company maintains the cost of each inventory item. -determines the cost of goods sold each time a sale occurs

Periodic System

-An inventory system in which a company does not maintain detailed records of goods on hand throughout the period. -determines the cost of goods sold only at the end of an accounting period. Beg. Inventory + Cost of goods purchased - End Inventory = COGS

Net income is $15,000, operating expenses are $20,000, and net sales total $75,000. How much is cost of goods sold?

15,000 (net income) +20,000 (operating expenses) =35,000 (gross profit) -75,000 (net sales) =40,000 (COGS)

Net income is $15,000, operating expenses are $20,000, net sales total $75,000, and sales revenues total $95,000. How much is the profit margin?

15,000/ 75,000 (net income/ net sales) =20%

During the year ended December 31, 2017, Bjornstad Corporation had the following results: net sales $267,000, cost of goods sold $107,000, net income $92,400, operating expenses $55,400, and net cash provided by operating activities $108,950. What was the company's profit margin?

34.6%. 92,400/267,000 (net income/ net sales)

Purchase Invoice

A document that provides support for each purchase.

Contra revenue account

An account that is offset against a revenue account on the income statement.

Which of the following would affect the gross profit rate?

An increase in cost of goods sold.

In a periodic inventory system, when is the cost of the merchandise sold determined?

At the end of the period

The operating cycle of a merchandising company is ordinarily shorter than that of a service company.

False

Sales Discounts is a contra asset account.

False -->Sales Discounts is a contra account to Sales Revenue

Gross Profit Rate

Gross profit/ Net sales *helps companies decide if the prices of their goods are in line with changes in cost of inventory -->Higher ratio suggests the average margin between selling price and inventory cost is increasing. Too high a margin may result in lost sales.

Profit Margin

Net Income/ Net Sales *helps companies decide if they are maintaining an adequate margin between sales and expenses -->Higher value suggests favorable return on each dollar of sales.

Gross Profit

Net Sales- COGS= gross profit

Under what system is cost of goods sold determined at the end of an accounting period?

Periodic inventory system

Sales Revenue

Primary source of revenue for a merchandising company.

Under the perpetual inventory system, which of the following accounts would not be used?

Purchases Accounts used: -COGS -Inventory -Sales Revenue

Which sales accounts normally have a debit balance?

Sales Discounts. & Sales Returns and Allowances.

Net Sales

Sales revenue - sales returns and allowances - sales discounts = net sales

Which one of the following will result in gross profit?

Sales revenue less cost of goods sold

Cost of goods sold

The total cost of merchandise sold during the period.

Which statement is true when recording the sale of goods for cash in a perpetual inventory system?

Two journal entries are necessary: one to record the receipt of cash and sales revenue, and one to record the cost of goods sold and to reduce inventory.

The multiple-step income statement for a merchandising company shows each of these features except:

an investing activities section. These features are on it: -gross profit. -cost of goods sold. -a sales section.

Assume Grammar Company uses the periodic inventory system and has a beginning inventory balance of $5000, purchases of $75000, and sales of $125000. Grammar closes its records once a year on December 31. In the accounting records, the inventory account would be expected to have a balance on December 31 prior to adjusting and closing entries that was

equal to $5000.