Accounting Chapter 4
Answer: Gross margin = Sales revenue - Cost of goods sold Cost of goods sold = (Goods purchased - Purchase returns) x (Purchase price percentage - discount) ($25,000 - $2,400) x (100% - 2%) = $22,600 x 98% = $22,148 Gross margin = sales revenue - cost of goods sold *Gross margin = $37,600 - $22,148 = $15,452.*
(Use Chart 1) The amount of gross margin from the four transactions is:
Answer: Assets = liabilities + owners equity Purchase inventory: Inventory + $25,000, Accounts payable + $25,000 Return of merchandise: Inventory -$2,400, Accounts payable -$2,400 *Assets and liabilities are reduced by $2,400.*
(Use Chart 1) What effect will the return of merchandise to the supplier have on the accounting equation?
Answer: Ending inventory = $48,000 beginning inventory + $240,000 Inventory purchases - $3,600 purchase returns and allowances - $2,400 purchase discounts + $9,600 transportation-in - $170,400 cost of goods sold = *$121,200*
(Use Chart 10) Based on this information, the inventory at December 31, 2016 is...
Answer: Gross margin = sales revenue - cost of goods sold Gross margin = $114,000 - $65,600 = *$48,400.*
(Use Chart 2) Acme's gross margin for the year 2016 is:
Answer: *$6,000 $14,000* Gross margin = sales revenue - cost of goods sold = $14,000 Sales - $8,000 cost of goods sold = *$6,000* The purchase was made on account, and does not affect cash flows until payment is made to the supplier. Therefore, the only effect on cash flows is the inflow from the customer of *$14,000.*
(Use Chart 3) Acme Corp. purchased $8,000 of merchandise on account. Acme sold the merchandise to a customer for $14,000 cash. What is the increase in gross margin and the net change in cash flow from operating activities as a result of these transactions?
Answer: Inflow from sale $188,000 - Outflow for payment of inventory purchase ($128,000 x 0.98) - Outflow for transportation-in $4,800 - Outflow for transportation-out $3,200 = *$54,560 inflow*
(Use Chart 4) As a result of the above transactions of Acme Corp., the net cash flow from operating activities was...
Answer: Cost of goods sold = purchase price of inventory less discount + shipping cost to obtain it = $128,000 x (100% - 2%) + $4,800 = $128,000 x 98% + $4,800 = $125,440 + $4,800 = $130,240 Gross margin = sales revenue - cost of goods sold = $188,000 -$130,240 = *$57,760 * Feedback: $188,000 Sales - [($128,000 x 0.98) + $4,800] Cost of goods sold = $57,760 Gross margin
(Use Chart 4) The gross margin from these transactions of Acme Corp. is...
Answer: Net income percentage = Net Income ÷ Sales revenue Alpha: $23,000/$140,000 = *16.4%* Beta $35,800/$152,000 = *23.6%*
(Use Chart 5) What are the net income percentages for the above companies?
Answer: * Administrative expenses*
(Use Chart 6) The following are the income statements of Acme Corp. for two consecutive years. Increases in which expenses contributed to the net loss in 2016?
Answer: Percentage of operating expenses as a percentage of sales = Operating expenses ÷ sales revenue Operating expenses as a percentage of sales: Company W: $19,200/$160,000 = 12.0% Company X: $25,200/$360,000 = 7.0% Company Y: $21,600/$240,000 = 9.0% Company Z: $20,000/$200,000 = 10.0% So, *Company X has the least operating expenses as a percentage of sales revenue*
(Use Chart 7) Based on common-sized income statements, which of the companies spent, relative to sales, the least on operating expenses?
Answer: Gross margin percentage = Gross margin ÷ Sales revenue So, the answer is,* Company X*, because a discount retailer would likely have a lower gross margin percentage.
(Use Chart 7) Three of the companies are high-end department stores such as Saks Fifth Avenue. One company is a discount retailer similar to WalMart. Which company is most likely to be the discount store?
Answer: Gross margin percentage = Gross margin ÷ Sales Revenue Gross margin = $72,000 - $28,800 = $43,200 Gross margin percentage = $43,200/$72,000 = *60%*
(Use Chart 8) The company's gross margin percentage is:
Answer: Cost of goods sold = Beginning inventory + Inventory purchases - Purchase discounts + Transportation in - Ending inventory Cost of goods sold = $19,200 + 48,000 - $1,200 + $2,400 - $21,600 = $46,800 Gross margin = Sales revenue - Cost of goods sold = $72,000 - $46,800 = * $25,200*
(Use Chart 9) The amount of gross margin appearing on the income statement should be:
Answer: Understating ending inventory in a periodic inventory system will overstate cost of goods sold. If cost of goods sold is overstated, net income for that year and ending retained earnings will be understated *Understated Understated*
. Acme Corp. uses the periodic inventory cost flow method. If Acme's ending inventory is understated because of an accounting error, what is the effect on net income and the ending balance of retained earnings?
*Wholesale firm*
A business firm that primarily sells merchandise to other businesses is known as a:
Answer: *a cash discount, a sales discount by the seller, or a purchase discount by the buyer.*
A discount given to encourage prompt payment is called:
Answer: Assets = liabilities + owners' equity (common stock + retained earnings) Gross margin = revenue - cost of goods sold Gross margin = $3,000 - $2,000 = $1,000 As a result of the sale, total assets (cash or accounts receivable) would increase by $1,000 and owners' equity (retained earnings) would increase by $1,000 If the goods are returned, the $1,000 in gross margin is wiped out, and so would be the increase in assets and owners' equity (retained earnings. So, the answer is: *Total assets and total equity decrease by $1,000.*
Acme Corp. sold merchandise costing $2,000 for $3,000 cash. The merchandise was later returned by the customer for a refund. If the perpetual inventory method is used, what effect will the sales return have on the accounting equation?
Answer: Gross margin = sales revenue - cost of goods sold Gross margin = $900 - $600 = $300 This transaction should increase assets (cash or accounts receivable) by $300 and increase owners' equity (retained earnings) by $300 Because the sale was not recorded, *assets and total equity will be understated by $300..*
Acme Corp. sold merchandise with a cost of $600 to a customer for $900 on account. Because of an error, this sale was never recorded in the accounting records. What effect will the failure to make the necessary entries have on the company's accounting equation?
Answer: Cost of goods sold = purchase price of the inventory less any discount + transportation costs paid by the buyer of the inventory Cost of goods sold = $32,000 x (100% - 2%) + $1,000 = $32,000 x 98% + $1,000 = $31,360 + $1,000 = $32,360 Gross margin = sales revenue - cost of goods sold = $60,000 - $32,360 = *$27,640*
Acme Corp. uses a perpetual inventory system. The company purchased $32,000 of merchandise from Beta Company under the terms 2/10, net/30. Acme paid for the merchandise within 10 days and also paid $1,000 freight to obtain the goods under terms FOB shipping point. All of the merchandise purchased was sold for $60,000 cash. The amount of gross margin for this merchandise is:
Answer: Gross margin = sales revenue - cost of goods sold Gross margin = $4,000 -$2,500 = $1,500 The sale will increase assets (cash or accounts receivable) by $4,000 and decrease assets (inventory) by $2,500 for a *net increase in total assets of $1,500.*
Acme Corp. uses the perpetual inventory method. Acme sold goods that cost $2,500 for $4,000. If the sale was made on account, the net effect of the sale will:
Answer: When inventory is sold to a customer, the cost of the inventory sold is deducted from the total amount of inventory available sale. Therefore, *The inventory account will decrease by $200 in this particular case.*
Acme Corp. uses the perpetual inventory method. The company purchased an item of inventory for $200 and sold the item to a customer for $300. What effect will the sale have on the company's inventory account?
Answer: If inventory records show a balance of $7,000 and physical counts shows a balancer of $6,000, then there is shrinkage of $1,000 of inventory that must be accounted for. The missing $1,000 in inventory can no longer be considered an asset; therefore inventory records must be written down (expensed) by $1,000. Thus, the entry to recognize the missing inventory will *increase expense.*
Acme Corp. uses the perpetual method. The company's inventory account had a $7,000 balance as of December 31, 2016. A physical count of inventory shows only $6,000 of merchandise in stock at December 31, 2016. The entry to recognize the missing inventory will...
Answer: * Net Income divided by Net Sales*
Net income percentage is equal to:
*when the merchandise is sold.*
Product costs are matched against sales revenue...
*an expense*
The Cost of Goods Sold account is classified as:
Answer: Ending retained earnings 2016 = Beginning retained earnings 2015 + net earnings in 2015 + net earnings in 2016 Net income = sales revenue - (cost of goods sold + operating expenses) 2015 Net income = $61,200 (sales revenue) - $32,000 (cost of goods sold) - $28,000 (operating expenses) = $1,200 2016 Net Income: $114,000 (sales revenue) - $65,600 (cost of goods sold) - $36,000 (operating expenses) = $12,400 Ending retained earnings 2016 = Beg. Retained Earnings + 2015 retained earnings + 2016 retained earnings Ending retained earnings 2016 = $0 +$1,200 + $12,400 = *$13,600*
The amount of retained earnings at December 31, 2016 is:
Answer: Ending inventory = Beginning inventory + inventory purchases - inventory sales Ending inventory = $0 (beginning inventory) + $52,800 + $70,400 (inventory purchases) - ($32,000 + $65,600) [inventory sales ] Ending inventory = $0 + $123,200 - $97,600 = *$25,600.*
The balance in the inventory account shown at December 31, 2016 is:
Answer: *efficiency and ease of recording.*
The chief advantage of the periodic system is:
Answer: *two percent discount can be deducted if the invoice is paid before the fifteenth day following the date of the sale.*
The credit terms, 2/15, n/30, indicate that a:
Answer: *Make comparisons between firms of different sizes and between different time periods. *
The purpose of common size financial statements is to:
Answer: * The seller pays the shipping cost and records transportation-out expense.*
The term "FOB Destination" means....
Answer: *The buyer pays the shipping cost.* " FOB Shipping Point" means that ownership of the goods is passed to the buyer at the time goods are shipped, and that the buyer (owner of the goods) pays the shipping costs.
The term "FOB Shipping Point" means
Answer: When inventory is purchased on account, assets (inventory), and liabilities (accounts payable) increase by equal amounts. Therefore, the answer is: *Total assets and total liabilities both increase*
What is the effect of an entry to the record for the purchase of inventory on account under the perpetual inventory method?
Answer: Gross margin = sales revenue - cost of goods sold Therefore, *Cost of goods sold and sales affect gross margin.*
Which accounts would affect gross margin?
- Operating income = sales revenue - (cost of goods sold + transportation out and other operating expenses)Therefore, the accounts that would affect operating income are- *Cost of goods sold, transportation out, selling expense, and sales* (the same answer as for Question No. 12)-
Which accounts would affect operating income?
Answer: The balance sheet contains total assets on the left side and total liabilities and owners' equity (common stock and retained earnings on the right side. Therefore, the accounts that would appear on the balance sheet are: *Cash, merchandise inventory, *(which are asset accounts) and *common stock* (which is an equity account).
Which accounts would appear on the balance sheet?
Answer: Net income = sales revenue -cost of goods sold = gross margin - (transportation out + other selling expenses) Therefore, the accounts that would appear on the income statement are: *Cost of goods sold, transportation out, selling expense, and sales.*
Which accounts would appear on the income statement?
Answer: *Advancements in technology.*
Which factor has removed most of the practical limitations associated with use of the perpetual inventory system?
*Advertising expense for the current month.*
Which of the following is considered a period cost?
*Transportation cost on goods received from suppliers.*
Which of the following is considered a product cost?
*Most period costs are expensed in the period the costs are incurred.*
Which of the following statements is true about period costs?
*a supermarket*
Which of the following would be considered as primarily a merchandising business?
