ACCT EXAM 2

lower of cost or market (lcm)

A basis whereby inventory is stated at the lower of either its cost or its market value as determined by current replacement cost.

a company pays wages every two weeks. wages amount to $100 a day, 7 days a week. on march 31, the company pays wages for the two weeks ending march 24. at the end of the month, the related adjusting journal entry will include a A.debit to wages payable for $1400 and a credit to wages expense for $1400 B.debit to wage expense for $700 and a credit to wages payable for $700 C.debit to wages payable for $700 and a credit to wages expense for $700 D.debit to wages expense for $1400 and a credit to wages payable for $1400

B

If certain assets are partially used up during the accounting period, then: A. nothing is recorded on the financial statements until they are completely used up. B. a liability account is decreased or eliminated and an expense is recorded. C. an asset account is decreased or eliminated and an expense is recorded. D. nothing is recorded on the financial statements until they are replaced or replenished.

C

Cost of Goods Sold Equation

CGS = Beginning Inventory + Purchases of merchandise - Ending Inventory

A company had been selling its product for $20 per unit, but recently lowered the selling price to $15 per unit. The company's current inventory consists of 200 units purchased at $16 per unit. The market value of this inventory is currently $13 per unit. At what amount should the company's inventory be reported on the balance sheet?

A

Flynn Company uses a perpetual inventory system and had the following transactions during November: November 6 - Purchased $5,800 of inventory on account, terms 2/10, n/30. November 8 - Returned $800 of defective units and received full credit. November 15 - Paid the amount due. Use the information above to answer the following question. What journal entry will be recorded by Flynn Company on November 6? A) Debit Inventory and credit Accounts Payable for $5,800 B) Debit Cost of Goods Sold and credit Accounts Payable for $5,684 C) Debit Purchases and credit Accounts Payable for $5,800 D) Debit Inventory and credit Accounts Payable for $5,684

A

Shockglass Company had a beginning inventory of $15,000. During the year, the company recorded inventory purchases of $45,000 and cost of goods sold of $50,000. The ending inventory must equal: A) $10,000. B) $25,000. C) $26,000. D) $27,000.

A

Sid's Cycles uses the perpetual inventory system. At the beginning of the quarter, Sid's Cycles has $30,000 in inventory. During the quarter the company purchases $7,900 of new inventory from a vendor, returned $700 of inventory to the vendor, and took advantage of discounts from the vendor of $200. At the end of the quarter the balance in inventory is $26,500. What is the cost of goods sold? A) $10,500 B) $11,400 C) $3,500 D) $11,900

A

perpetual inventory system

A detailed inventory system in which a company maintains the cost of each inventory item, and the records continuously show the inventory that should be on hand.

adjusting journal entry

An end-of-period journal entry required to bring the account balances up-to-date before the preparation of the financial statements

periodic inventory system

An inventory system in which a company does not maintain detailed records of goods on hand throughout the period and determines the cost of goods sold only at the end of an accounting period.

A company starts the period with 100 computers in inventory, purchases 30 more, returns 4 of them to suppliers, and has 83 in inventory at the end of the period. If there is no shrinkage, how many computers were sold? A) 47 B) 43 C) 17 D) 83

B

Flynn Company uses a perpetual inventory system and had the following transactions during November: November 6 - Purchased $5,800 of inventory on account, terms 2/10, n/30. November 8 - Returned $800 of defective units and received full credit. November 15 - Paid the amount due. Use the information above to answer the following question. What journal entry will be recorded by Flynn Company on November 8? A) Debit Inventory and credit Cost of Goods Sold for $800 B) Debit Accounts Payable and credit Inventory for $800 C) Debit Inventory and credit Accounts Payable for $800 D) Debit Accounts Payable and credit Purchase Returns for $800

B

If an expense has been incurred but will be paid later, then: A. nothing is recorded on the financial statements. B. a liability account is created or increased and an expense is recorded. C. an asset account is decreased or eliminated and an expense is recorded. D. a revenue and an expense are accrued.

B

The perpetual inventory method of tracking inventory is considered superior to the periodic method because the perpetual method: A) makes calculations easier and less technology can be deployed. B) tells what inventory a company should have at any point in time. C) saves a company from ever having to count the goods in inventory. D) is more consistent with how companies calculated inventory in the past

B

Assume a periodic inventory system is used. The LIFO inventory costing method assumes that the cost of the units most recently purchased is the: A) last to be assigned to cost of goods sold. B) first to be assigned to ending inventory. C) first to be assigned to cost of goods sold. D) last to be assigned to units available for sale.

C

BetterBuy sells $50,000 of TVs to a customer. The credit terms state a 2% discount if paid in 7 days and a 1% discount if paid in 8-14 days. The customer pays in 12 days. How would BetterBuy record the customer's payment? A) Debit Cash for $50,000 and credit Accounts Receivable for $50,000 B) Debit Accounts Receivable for $50,000, credit Cash for $49,500, and credit Inventory for $500 C) Debit Cash for $49,500, credit Accounts Receivable for $50,000, and debit Sales Discounts for $500 D) Debit Cash for $49,500, credit Accounts Receivable for $49,000, and credit Sales Returns & Allowances for $500

C

Flynn Company uses a perpetual inventory system and had the following transactions during November: November 6 - Purchased $5,800 of inventory on account, terms 2/10, n/30. November 8 - Returned $800 of defective units and received full credit. November 15 - Paid the amount due. Use the information above to answer the following question. What journal entry will be recorded by Flynn Company on November 15? A) Debit Accounts Payable and credit Cash for $4,900 B) Debit Accounts Payable for $5,000, credit Purchase Discount for $100, and credit Cash for $4,900 C) Debit Accounts Payable for $5,000, credit Inventory for $100, and credit Cash for $4,900 D) Debit Accounts Payable for $4,900, credit Inventory for $100, and credit Cash for $4,800

C

On July 1, Darin Company sold inventory costing $4,500 to Dee Company for $6,000, terms 2/10, n/30. Both companies use the perpetual inventory system. Dee Company pays the invoice on July 8 and takes the appropriate discount. What journal entry will be recorded by Dee Company on July 8? A) Debit Accounts Payable and credit Cash for $6,000 B) Debit Accounts Payable for $5,880, credit Inventory for $120, and credit Cash for $6,000 C) Debit Accounts Payable for $6,000, credit Cash for $5,880, and credit Inventory for $120 D) Debit Cost of Goods Sold and credit Cash for $4,500

C

declared dividends: A. are an expense B. are not a legal obligation that a company must pay c. are a way to distribute the company's profits to its stockholders D. are reported on the balance sheet

C

B-Mart has a perpetual inventory system. B-Mart sells $5,000 of blue jeans. The customer later brings $600 of blue jeans back to B-Mart because they are defective. Those blue jeans had a cost of $200. The customer agrees to keep the blue jeans and B-Mart agrees to a $200 allowance. Which of the following is one of the entries that B-Mart will use to record the return? A) Debit Accounts Receivable for $200 and credit Inventory for $200 B) Debit Inventory for $200 and credit Accounts Receivable for $200 C) Debit Accounts Receivable for $200 and credit Sales Returns & Allowances for $200 D) Debit Sales Returns & Allowances for $200 and credit Accounts Receivable for $200

D

In a perpetual inventory system, paying transportation charges on goods purchased FOB shipping point would have which of the following effects? A) Decrease Operating Expenses B) Increase Selling, General, and Administrative Expenses C) Decrease Cost of Goods Sold D) Increase Inventory

D

FOB shipping point

Freight terms indicating that ownership of goods passes to the buyer when the public carrier accepts the goods from the seller.

FOB destination

Freight terms indicating that ownership of goods remains with the seller until the goods reach the buyer.

last in, first out (lifo)

Method for assigning cost to inventory that assumes costs for the most recent items purchased are sold first and charged to cost of goods sold.

first in, first out (fifo)

Method to assign cost to inventory that assumes items are sold in the order acquired; earliest items purchased are the first sold.

temporary accounts

Revenue, expense, and dividend accounts whose balances a company transfers to Retained Earnings at the end of an accounting period.

carrying value (net book value, book value)

The amount at which an asset or liability is reported after deducting any contra-accounts.

adjusted trial balance

a list of accounts and their balances after all adjustments have been made

Days to Sell

a measure of the average number of days from the time inventory is bought to the time it is sold

post-closing trial balance

a trial balance prepared after the closing entries are posted

permanent accounts

all accounts that appear in the balance sheet; account balances are carried forward from period to period

contra-account

an account that reduces a related account on a financial statement

weighted average cost

an inventory costing method that assigns the same unit cost to all units available for sale during the period

Goods Available for Sale

beginning inventory + purchases

inventory turnover

cost of goods sold/average inventory

gross profit percentage

gross profit/net sales

shrinkage

losses experienced by retailers due to shoplifting, employee theft, and damage to merchandise

gross profit (or gross margin)

net sales - cost of goods sold

specific identification

the inventory costing method that identifies the cost of the specific item that was sold