ACCT 2401 | EXAM 2

LIFO

An advantage of the _____ costing method is that the cost of goods sold approximates its current cost.

$2,401 ($2000-$40+$300+$50+$100)

An item was shipped from a supplier under FOB shipping point. The invoice in the amount of $2,000 included payment terms of 2/10, n/30. When the invoice was paid, a purchase discount in the amount of $40 was taken. Other details relating to the purchase of this item included the following: shipping charges of $300, storage fees of $50, and insurance premium of $100. The cost of this inventory item is _____.

LIFO

Complete each sentence by selecting the correct term using the drop-down list. During a period of regularly rising purchase costs, this method yields the highest reported cost of goods sold amount on the income statement

net sales - COGS = gross profit

Computation of gross profit equation

exclude from inventory

Damaged inventory that can not be resold

$18,600

Costs of $15,000 were incurred to acquire goods and make them ready for sale. The goods were shipped to the buyer (FOB shipping point) for a cost of $1,200. Additional necessary costs of $2,400 were incurred to acquire the goods. No other incentives or discounts were available. What is the buyer's total cost of merchandise inventory?

include in inventory

Do you include inventory or exclude inventory? Goods in transit shipped by Abbey (seller) FOB Destination

exclude from inventory

Do you include inventory or exclude inventory? Goods in transit shipped by Abbey (seller) FOB Shipping Point

exclude from inventory

Do you include inventory or exclude inventory? Goods in transit shipped to Abbey (purchaser) FOB Destination

include in inventory

Do you include inventory or exclude inventory? Goods in transit shipped to Abbey (purchaser) FOB Shipping Point

exclude from inventory

Do you include inventory or exclude inventory? Goods on consignment (Abbey is consignee)

include in inventory

Do you include inventory or exclude inventory? Goods on consignment (Abbey is cosigner)

include in inventory

Do you include inventory or exclude inventory? Obsolete inventory that can be sold

LIFO

During a period of regularly rising purchase costs, this method yields the lowest income tax expense.

FIFO

During a period of steadily rising costs, this method results in the highest amount of inventory reported on the balance sheet.

o Goods Available For Sale o COGS o Gross Profit

For the merchandiser, you compute these items

a physical inventory count should be taken at least annually.

If a perpetual inventory system is in use _____.

Yes

If an item ships FOB Shipping. Point, do you include the shipping cost. in inventory calculation?

Accounts Receivable $7,200 Sales $7,200

JE 4/1: Sold merchandise for $7,200, with credit terms n/30; invoice dated April 1. The cost of the merchandise is $4,320.

Accounts Payable $62,500 Cash $62,500

JE 9/15: Purchased merchandise with an invoice price of $62,500 and credit terms of 5/5, n/15. 9/29: Paid supplier the amount owed on the September 15 purchase.

Merchandise Inventory. $62,500 Accounts Payable $62,500

JE 9/15: Purchased merchandise with an invoice price of $62,500 and credit terms of 5/5, n/15. 9/29: Paid supplier the amount owed on the September 15 purchase.

Sales Returns and allowances $800 A/R $800

JE 4/1: Sold merchandise for $7,200, with credit terms n/30; invoice dated April 1. The cost of the merchandise is $4,320. 4/4: The customer in the April 1 sale returned $800 of merchandise for full credit. The merchandise, which had cost $480, is returned to inventory.

Cash $6400 Accounts Receivable $6400

JE 4/1: Sold merchandise for $7,200, with credit terms n/30; invoice dated April 1. The cost of the merchandise is $4,320. 4/4: The customer in the April 1 sale returned $800 of merchandise for full credit. The merchandise, which had cost $480, is returned to inventory. 4/8: Sold merchandise for $3,100, with credit terms of 1/10, n/30; invoice dated April 8. Cost of the merchandise is $2,170. 4/11: Received payment for the amount due from the April 1 sale less the return on April 4.

A/R $3,100 Sales $3,100

JE Sold merchandise for $3,100, with credit terms of 1/10, n/30.

Accounts Payable. 105,000 Merchandise Inventory 2,100 Cash 102,900

JE 8/1: Purchased merchandise with an invoice price of $105,000 and credit terms of 2/10, n/30. 8/11: Paid supplier the amount owed from the August 1 purchase

Merchandise Inventory 105,000 Accounts Payable 105,000

JE 8/1: Purchased merchandise with an invoice price of $105,000 and credit terms of 2/10, n/30. 8/11: Paid supplier the amount owed from the August 1 purchase

Merch Inventory $480 COGS $480

JE for The merchandise, which had cost $480, is returned to inventory.

realizable

Market value is replacement cost for LIFO, but net ___ value is used for FIFO, Specific Identification and Weighted Average methods.

Goods sold

Merchandise inventory includes all of the following except: o Goods held for sale o Goods located in the warehouse o Goods sold o Goods located in an off-site warehouse

FOB Destination

Ownership of goods transfers to the buyer when the goods arrive at the buyer's place of business Seller pays shipping charges Seller does not record revenue until the goods arrive at the destination

Accounts Payable $300 Merchandise Payable. $300

Prepare journal entries to record each of the following transactions of a merchandising company. The company uses a perpetual inventory system and the gross method: 11/5 - Purchases 400 units of product at a cost of $10 per unit. Terms of the sale are 3/10, n/60. Invoice is dated November 5th. 11/7 - Returned 30 defective units from the Nov. 5th purchase and received full credit. 11/15 - Paid the amount due from the November 5th purchase, minus the November 7th.

Merchandise Inventory $4,000 Accounts Payable $4000

Prepare journal entries to record each of the following transactions of a merchandising company. The company uses a perpetual inventory system and the gross method: 11/5 - Purchases 400 units of product at a cost of $10 per unit. Terms of the sale are 3/10, n/60. Invoice is dated November 5th. 11/7 - Returned 30 defective units from the Nov. 5th purchase and received full credit. 11/15 - Paid the amount due from the November 5th purchase, minus the November 7th.

LIFO

Under the conformity rule, companies who use the _____ method for tax reporting, are required by the IRS to also use it in their financial statements.

revenue, expense, dividends

What CLOSING ENTRY account must begin each period with a ZERO balance

o Assets o Liabilities o Common Stock o. Retained Earnings

What are permenant accounts?

o Revenues o Expenses o. Dividends o Income Summary

What are temporary ccoutns?

records the purchase at its FULL invoice amount

What does gross method mean?

FOB Shipping Point

o Shipping process in which the buyer accepts ownership when the goods depart the seller's place of business. o Buyer pays shipping costs o goods are part of the buyers inventory