Accounting - Chapter 5 HW/Quiz

When credit terms of 1/15, n/60 are offered, how long is the discount period?

The 1% discount can be taken if the invoice is paid within 15 days.

Ending inventory is $10,000, beginning inventory is $20,000, and the cost of goods purchased is $25,000. How much is cost of goods sold?

$35,000 ----- Beginning balance ($20,000) plus purchases ($25,000) equals $45,000 in merchandise available, less ending inventory ($10,000) equals cost of goods sold of $35,000.

Martin Company purchases $4,200 of merchandise on March 1, with credit terms of 3/10, n/30. If Martin pays on March 11, what is the cost of this purchase?

The terms of 3% if paid within 10 days on the $4,200 invoice permits the buyer to take a discount of $126 on the invoice, $4,200 - (3% × $4,200) = $4,074

Which of the following items does not result in an entry to the Inventory account under a perpetual system?

Payment of freight costs for goods shipped to a customer ---- This entry requires a debit to Freight-out and a credit to cash. Freight-out is not part of the cost of inventory.

The Sales Returns and Allowances account is classified as a(n)

contra revenue account.

The collection of a $700 account beyond the 2 percent discount period will result in a

credit to Accounts Receivable for $700. ----- $700 - 0 = $700

Sampson Company's accounting records show the following for the year ending on December 31, 2014. Purchase Discounts $5,600 Freight-in 7,800 Purchases 350,010 Beginning Inventory 23,500 Ending Inventory 28,800 Purchase Returns and Allowances 6,400 Using the periodic system, the cost of goods sold is

$340,510. ----- [$23,500 + ($350,010 - $5,600 - $6,400 + $7,800)] - $28,800 = $340,510

If beginning inventory is $60,000, cost of goods purchased is $380,000, sales revenue is $800,000 and ending inventory is $50,000, how much is cost of goods sold under a periodic system?

$390,000 ----- Cost of goods sold is computed by adding beginning inventory and cost of goods purchased and then subtracting ending inventory, or $60,000 + $380,000 - $50,000 = $390,000.

A company has the following accounts balances: Sales revenue $2,000,000; Sales Returns and Allowances $250,000; Sales Discounts $50,000; and Cost of Goods Sold $1,275,000. How much is the gross profit rate?

25% ----- Gross profit divided by net sales results in a gross profit rate of 25%. Net sales = $2,000,000 ‒ $250,000 ‒ $50,000 = $1,700,000 Gross profit = $1,700,000 ‒ $1,275,000 = $425,000 Gross profit rate = $425,000/$1,700,000 = 25%

Income from operations is gross profit less 1. operating expenses and other expenses and losses. 2. operating expenses plus other revenues and gains. 3. operating expenses.

3

Which of these accounts normally have a debit balance?

Both Sales Discounts and Sales Returns and Allowances

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.

Discount term of 2/10, n/30 mean that a 10% cash discount is available if payment is made within 30 days.

False

Which of the following companies would be most likely to use a perpetual inventory system?

Fur dealer

Which of the following is classified in an income statement as a nonoperating activity?

Interest expense --- Interest expense is properly classified as a non-operating activity.

If a customer agrees to retain merchandise that is defective because the seller is willing to reduce the selling price, this transaction is known as a sales

allowance

A company using a perpetual inventory system that returns goods previously purchased on credit would

debit Accounts Payable and credit Inventory.

The collection of an $900 account within the 2 percent discount period will result in a

debit to Sales Discounts for $18. ----- $900 × .02 = $18

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

longer than

A credit sale of $700 is made on July 15, terms 2/10, net/30, on which a return of $50 is granted on July 18. What amount is received as payment in full on July 24?

$637 ----- ($700 - $50) × .98 = $637

Financial information is presented below: Operating expenses $35,000 Sales returns and allowances 12,000 Sales discounts 3,000 Sales revenue 140,000 Cost of goods sold 85,000 The profit margin ratio would be

.04 ----- $140,000 - $12,000 - $3,000 = $125,000; ($125,000 - $85,000 - $35,000) ÷ $125,000 = .04

Financial information is presented below: Operating expenses $35,000 Sales returns and allowances 12,000 Sales discounts 3,000 Sales revenue 140,000 Cost of goods sold 85,000 The gross profit rate would be

.32. ---- $140,000 - $12,000 - $3,000 = $125,000; ($125,000 - $85,000) ÷ $125,000 = .32

The figure for which of the following items is determined at a different time under the perpetual inventory method than under the periodic method?

Cost of Goods Sold

Which of the following would appear on both a single-step and a multiple-step income statement?

Cost of goods sold ----- Cost of goods sold is shown in both a single-step and multiple-step income statement.

Which inventory system will likely be used by a company with merchandise that has a high unit value?

Perpetual inventory system

Which statement is true when goods are purchased for resale by a company using a periodic inventory system?

Purchases on account are debited to the Purchases account. ----- All purchases are debited to the Purchases account in a periodic inventory system.

Which of the following is classified in an income statement as a nonoperating activity?

Receiving dividend revenue from an investment ------ Because dividend revenue is not related to the company's normal business operations, it should be classified as nonoperating activity.

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?

20% ----- Net income ($15,000) divided by net sales ($75,000) equals profit margin of 20%.

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?

A debit to Inventory for $200

Which of the following would affect the gross profit rate if sales remain constant?

An increase in cost of goods sold ----- Gross profit rate is computed by dividing gross profit by net sales and any change in sales, sales returns in allowances, sales discounts, or the cost of goods sold will affect the ratio.

When using a periodic inventory system and the purchaser directly incurs the freight costs, which account is debited?

Freight-In ----- When the purchaser directly incurs the freight costs and is using a periodic inventory system, Freight-in is debited.

Under the perpetual system, cash freight costs incurred by the buyer for the transporting of goods is recorded in which account?

Inventory

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

Periodic inventory system ----- Under the periodic inventory system, cost of goods sold for the period is calculated by adding purchases for the period to the beginning inventory balance and subtracting the ending inventory balance.

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

The amount to be received as payment in full on June 23 is $686. Because payment is made within the discount period of 10 days, the amount received as payment in full is $700 ($750 - return of $50) minus the discount of $14 ($700 × 2%), or $686.

Freight-out appears as an operating expense in the income statement.

True

A merchandiser will earn an operating income of exactly $0 when

gross profit equals operating expenses

Tony's Market recorded the following events involving a recent purchase of inventory under a perpetual inventory system: Received goods for $40,000, terms 2/10, n/30. Returned $800 of the shipment for credit. Paid $200 freight on the shipment. Paid the invoice within the discount period. As a result of these events, the company's inventory

increased by $38,616. ----- [($40,000 - $800) × .98] + $200 = $38,616

Inventory becomes part of cost of goods sold when a company

sells the inventory.

The form of income statement that derives its name from the fact that the total of all expenses is deducted from the total of all revenues is called a

single-step statement.

Crowder Corporation recorded the return of $200 of goods originally sold on credit to Discount Industries. Using the periodic inventory approach, Crowder would record this transaction as:

Sales Returns and Allowances 200 Accounts Receivable 200

Which one of the following will result in gross profit?

Sales revenue less cost of goods sold ----- Cost of goods sold is subtracted from net sales to calculate gross profit.

Which of the following is a merchandiser that sells directly to consumers?

Retailer

Gross profit is the difference between net sales and cost of goods sold.

True

Sales Returns and Allowances is a contra--revenue account.

True

Arbor Corporation had reported the following amounts at December 31, 2014: Sales revenue $184,000; ending inventory $11,600; beginning inventory $17,200; purchases $60,400; purchases discounts $3,000; purchase returns and allowances $1,100; freight-in $600; freight-out $900. Calculate the cost of goods available for sale.

$74,100 ----- Cost of goods available for sale equal the beginning inventory plus purchases minus purchases discounts and purchases returns and allowances plus freight-in: $17,200 + $60,400 - $3,000 - $1,100 + $600 = $74,100.

Which of the following statements is correct?

A perpetual inventory system provides better control over inventories than does a periodic inventory system.

Turner Corporation returned $150 of goods originally purchased on credit from Morgan Industries. Using the periodic Inventory approach, Turner would record this transaction as:

Accounts Payable 150 Purchases Returns and Allowances 150

A retailer makes a $100 sale with terms of 2/10, n/30 on the first of the month. The customer returns $20 of merchandise for credit on account. What journal entry will the retailer record when payment is received within the discount period under a perpetual inventory system?

Cash 78.40 Sales Discounts 1.60 Accounts Receivable 80.00

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

Purchases